Tax Rascal » Today in the Taxosphere

Free Money, Expensive Raises, School Shopping, and Cheap Guns

Tax Rascal — Mon, 27 Jul 2009 13:38:37 +0000

So you’re interested in buying school supplies, or possibly guns, but you want to make sure you get the best possible deal — you’re in luck! Thanks to back-to-school tax holidays, many states will make that shopping cheaper for you. And later in the year, one state is even having a tax holiday for guns!

But first, how about some free money?

The Wandering Tax Pro finds out how easy it is to get free money from the Feds — but not in the way you’d expect! It’s a good point about how little fact-checking there is behind the homebuyer’s rebate (and might explain why the homebuyer’s tax credit is taking so long.
The Digerati Life discusses the historical minimum wage (see also the Taxrascal entry about the minimum wage). Digerati cites a study adding fuel to the anti minimum-wage fire: when minimum wages increase, more high school students drop out — because they think they’ll make more money!
Kay Bell of Don’t Mess With Taxes discusses back-to-school tax holidays, with a handy calendar. Is your state on it?
Roth & Company adds to the discussion: there’s a gun sales tax holiday, too! Which seems not so much “good” or “bad” as “bizarre,” especially since the tax holiday excludes ammunition.

Today in the Taxosphere

Tax Rascal — Tue, 07 Apr 2009 22:10:37 +0000

Mr. Donald Trump, famous for announcing the line “You’re FIRED” on the popular NBC show The Apprentice, was interviewed today by Neil Cuvato from the Fox News Network. Mr. Trump announced that he doesn’t approve of the proposed New York Assembly Democrats’ Millionaire Tax, which will bring millions of dollars to the hemorrhaging MTA.

Under the plan, people who earn over $1 million in New York state will pay an income tax surcharge of about 3/4 of 1 percent for five years. In all, it would raise over $5 billion for mass transit.

Mayor Bloomberg and Mr. Trump would contribute to the transportation funds as will athletes and high-paying corporate executives. Donald Trump says that most individuals, including himself, will flee the city and Manhattan will fall in shambles. Rush Limbaugh recently announced his Manhattan departure. I say they won’t leave, especially Mr. Trump. Mr. Trump has made a fortune during high tax season and I believe will continue to be a Manhattanite. His hair alone has its own zip code.

In other news there was an article today in the WSJ announcing that San Franciscans top the list of tax-filing procrastinators, in regards to filing within the last two days of tax season 2008. New Yorkers also love filing their taxes late coming in at third, and on the Top 10 list for the last eight years.

Still not done with your taxes? You’re not alone. While almost 78 million U.S. taxpayers filed returns to the IRS through March 20, that still leaves at least another 46 million taxpayers to file in the four weeks from March 20 through April 17 – about 11.5 million taxpayers per week – based on 2007 IRS filing statistics.

Optimists, Pessimists, and Con of All Kinds

Tax Rascal — Tue, 21 Oct 2008 17:27:43 +0000

With the market in the doldrums and the election turning nastier every day, most people are feeling increasingly negative about everything, their finances included. But the markets have (for now) stopped crashing, and some people are taking stock and seeing reasons to be optimistic. Meanwhile, others point out that there are still some financial follies to avoid. And, of course, there’s a new crop of entertaining tax evaders since the last edition of Today in the Taxosphere.

Legendary investor Warren Buffett says to buy stocks — he is. According to his new authorized biography, the normally cautious Buffett made lots of personal investments in the late 1970’s — using borrowed money. Could be a good sign. Of course, as Buffett would usually argue, you should do your own research and avoid trying to time the market.
FIRE Finance offers a detailed guide to how to save — and how much to save — for retirement. Particularly useful: they offer several tables showing how much income to set aside at various ages. If you’re thinking of procrastinating, keep this in mind: the savings required if you start at 45 or 50 are many times the proportional savings required of someone who starts at 25 or 30. Missing a decade or two of compound is a big sacrifice.
Paul Caron the TaxProf has useful tax commentary on this Slashdot thread about the tax consequences of writing open source software. The lessons are more generally applicable: if you’re donating your time and talent to a nonprofit, you may be incurring some expenses you can deduct. If you’re more interested in the logic of taxes than in the specifics of the tax code, this might also be appealing:

You can’t write off volunteer time. That would be double dipping. The good news is you don’t have to pay taxes on the money you didn’t earn while working on your book.

Imagine your time is worth $50.00 / hr. You could donate 100 hours of time by working for 100 hours for $5000. Then, you could donate the money back to the charity and deduct the $5000. Or, you could work for free for 100 hours and forgo the deduction. Both scenarios would put you in the same place tax wise.
Also via TaxProf, check out Bill Hamilton’s The Devil’s Dictionary of Taxation. Highlights include:

Occam’s Razor: A principle that states, in essence, that all other things being equal, the simplest solution is the best. That principle has no known application in state tax policy.
Russ Fox has a compendium of tax cheats, including “Victoria” and “Victor”, fake dependents who led to real tax deductions; James Perdigao, a lawyer and computer hacker who allegedly absconded with $30 million; and Louis Xifaras, busted for deducting business expenses — including bribes.
Finally, Five Cent Nickel inveighs against no-load mutual funds. In theory, it shouldn’t matter how your fees are structured, as long as they’re fair; a 5% load and .5% management fees could be a better deal than no-load and 1.5% fees, if you hold long enough. But usually, those sales loads convince brokers to push the funds that offer an immediate payout — to the detriment of shareholders.

Hopefully we’ll see more optimism in the future — and not just of the “Well, how could it get any worse?” variety.

More Joe the Plumber, More Tax Nonsense, More Fact Checking — And What to Do About Great Credit

Tax Rascal — Sat, 18 Oct 2008 03:11:13 +0000

Since he burst onto the national scene earlier this week, Joe the Plumber has become a symbol of how tax policy affects ordinary Americans. He’s the center of attention in today’s Taxosphere, but the debates also get some coverage as well. And of course, personal finance is in the news because of the continued market gyrations. Today’s Taxosphere goodness:

Paul Caron, the TaxProf, has a comprehensive roundup of Joe the Plumber coverage. There’s bad news for Joe’s ambitions; he’s not quite a plumber (though he doesn’t need a license since he works for a licensed plumber), and he doesn’t quite pay his taxes.
At Don’t Mess With Taxes, Kay Bell also covers Joe Wurzelbacher’s story, with more details about what the different tax policies mean for him. This entry includes a comprehensive list of other people named “Joe the Plumber,” who are doubtless seeing a boost in business thanks to their new brand name. I’m sure Inbev is, as we speak, scouting for an actual Joe Sixpack (whether he’s a bodybuilder or a couch potato is a matter for the focus groups).
Via Answerbag, I found this bizarrely-headlined Reuters story about how many corporations don’t pay taxes. Tell me — does a headline like “Study says most corporations pay no U.S. income taxes” belong on an article with quotes like “72 percent of all foreign corporations and about 57 percent of U.S. companies doing business in the United States paid no federal income taxes for at least one yearbetween 1998 and 2005… More than half of foreign companies and about 42 percent of U.S. companies paid no U.S. income taxes for two or more years in that period, the report said.”
In other words, the survey says that 43% of US businesses paid income taxes every year from 1998 to 2005, and 58% paid income taxes for at least five of the seven years in question. In other words, the article’s headline was missing some crucial information: Most corporations paid no income taxes for one year out of a seven-year period that included a huge recession and a terrorist attack.
Mr. Credit card, a guest blogger on The Digerati Life, gives a great list of ways you can take advantage of good credit. These range from small improvements (negotiate a better APR!) to daring moves (buy a house out of foreclosure!).
A the Tax Policy Foundation’s Tax Policy Blog, Gerald Prante wearily corrects the persistent distortions from each Presidential contender.

Finally, it’s over. It was painful and I would have rather been watching baseball, but honestly, it was not quite as bad as the previous two debates between Sens. John McCain and Barack Obama in terms of abuse of the facts on tax issues. That being said, however, both candidates did make many of the same dishonest and misleading statements they’ve made in the past two debates and on the campaign trail. And given that these falsehoods have been debunked countless times not only here but by other organizations like CNN, CQ, and Factcheck.org, the fact that they continue to spout them suggests that they don’t really care about the truth and would rather just say what sounds good in front of a camera.

Ouch! Most of the complaints are on economic issues that take a while to explain. But as long as “Greed” has a stronger resonance than “The incidence of taxation,” we’ll probably see more of the same — and people like Gerald Prante will still be rightfully annoyed.

Five Cent Nickel explains how to compare taxable and tax-free yields. Many investors are dangerously indifferent to the tax consequences of the funds they invest in.

Kay Bell returns, with news on the tax evasion case of Richard Hatch, the first Survivor winner. He gave up on outwitting long ago, and can’t even outlast: his attempt to appeal to the Supreme Court (he decided his million-dollar winnings weren’t income) has been rejected.

Fake Tax Cuts, Terrifying Foreclosure Videos, Dog Taxes, and More

Tax Rascal — Wed, 08 Oct 2008 04:25:21 +0000

We’re all bracing for the next debate, but the taxosphere is rolling right along. Today brought in still more outraged comments about the bailout/stabilization plan/boondoggle-upon-a-boondoggle-upon-a-boondoggle. There’s a lot to catch up on in today’s tax blog posts:

Karl Okamoto at Conglomerate notes that the new bailout bill ends a tax loophole for hedge fund managers. Could be good news, but since I’ve never heard a hedge fund manager’s fees quoted in terms of after-tax income, this might just mean that investors will learn to pay the two point five and twenty-five.

Russ Fox of Taxable Talk has the start of what promises to be a fascinating series on Obama’s tax proposals. It’s a bracingly cynical look at the way things work in Washington (one would expect a Chicago politician to know this kind of thing already). Basically, Fox’s thesis is that the only parts of Obama’s plan that could be enacted are the harmful ones, and the best parts are the most difficult to actually get into law.
It’s a brutal, point-by-point deconstruction of the Obama tax plan, complete with some well thought-out predictions of the longer-term effects of Obama’s policies. What’s great about this is that it’s less partisan than you would expect. Someone who respects and admires Obama could read this and come away thinking that it’s too bad some ideals can’t be written into law until they’re supported by the entire population; a more conservative viewer can read this and see further evidence that Obama’s plans and promises are unrealistic. We’ll just have to see what he says about McCain’s plan next.

Kay Bell at Don’t Mess With Taxes hosts the 41st Tax Carnival. There’s a great variety here: lots of broader posts on the economic situation, and a few that go into the deeper details of individual filings.

Paul Caron, also known as Taxprof informs us that you can now buy the IRS’s 2006 tax data by zip code. For data junkies interested in taxes, this is a dream come true. For the somewhat-overlapping group of intellectually curious people who don’t like to spend money frivolously, the cost — $25 per state, or $500 for the whole package — is a nightmare.

Mitchell A Port, the California Tax Attorney, has a great list of links for small-business tax issues. Given the current state of the economy, many people are thinking of starting their own company — quitting your job isn’t such a big leap when you’re worried about losing it anyway. So this is a timely guide to avoiding tax headaches in the future.

For the technology-oriented DIY crowd, Clever Dude has a neat project: build your own debt scales, using only a little bit of CSS and HTML. This is not as hard as it sounds to the uninitiated — basically, it’s an advanced form of copy-and-paste, but it gives you a chance to display your financial progress in graphical form.

The Digerati Life presents a sobering video on foreclosure, with commentary. Not the most cheerful film I’ve seen, but it’s good to know how these things work. Foreclosure is one of those risks that’s so terrible we don’t like to think about the details, but if nothing else it puts the numbers in perspective.

Linda Beale at A Taxing Matter points out the absurdity of Congress rejecting $700 billion in spending — unless it comes with $100 billion in tax cuts. This illustrates the fundamental problem of forming policy: that the easiest way to negotiate is to make collectively stupid decisions that benefit a small group. If you ever find a policy that you simply cannot explain, ask yourself: how many people would be willing to spend $100,000 to make this a law — and how many would be willing to spend that much money to repeal it? For something like sugar subsidies, ethanol, and now wooden arrowheads and wool research, this algorithm produces very enlightening results.

Lubna Kably of Talking Tax offers a collection of the weirdest taxes around the world. I’m voting for the Netherlands Dogs-Per-Household tax as, by far, the weirdest. There’s no way this didn’t start as a practical joke.

Race Car Champs, Prostitutes, Biden, Palin, and Other Tax Miscreants

Tax Rascal — Sat, 04 Oct 2008 03:12:01 +0000

Today’s taxosphere is still busy digesting the new bailout, but there’s plenty of other business to discuss. A pair of high-profile tax evasion cases have gotten some attention, the credit crisis is considered in more detail, and the Biden/Palin vice-presidential debate features some gaffes on both sides.

A the California Tax Attorney Blog, blogger Mitchell A. Port talks up the IRS’s increasing efficiency. Surprisingly, the big gains aren’t just in audits — the IRS has also gotten much better at providing easy online help for average users.

James Edward Maule, proprietor of MauledAgain asks who is to blame for the subprime meltdown and the bailout, and argues that the answer is much more complicated than we’d like it to be. It’s a decent post, but the anti-greed argument doesn’t fly. Fannie and Freddie tried very hard to increase loans to poor people with poor credit, for what may well have been altruistic reasons. And John Paulson, whose financial strategies helped prick the bubble and cushion the crash, was presumably motivated by all the money he could make for himself and his investors. Greed is too versatile to take all the blame, and too ubiquitous to be eradicated. A better answer is to build a system that accepts greed, and turns it to good purposes.

Via MarketWatch, we find the story of Helio Castroneves, two-time Indianapolis 500 winner, and his indictment for tax evasion. His fairly simplistic kickback scheme had lots of money sloshing back and forth from domestic to international accounts — not the best way to keep things secret. Paul Caron at TaxProf has more.

On a related note, and again from the indefatigable TaxProf, a Stanford Law grad and wife of the cofounder of AskJeeves.com has been busted for avoiding taxes on the money she earned as a prostitute. Her ‘client nine’ ponied up six figures, but after deductions for travel and other expenses, she only owed taxes of about $25,000. While her husband is probably able to make good on the debt, one wonders how he’d feel about spending his AskJeeves.com fortune on covering up for the TouchofBrazil.net mistakes.

Kay Bell at Don’t Mess With Taxes wonders how the bailout bill developed an interest in wooden arrowheads. This is one of those classic laws that ends up getting passed because 434 members of the House think it’s slightly ridiculous, and one member clearly thinks it’s incredibly important. Think of it as the Toy Arrowhead theorem of democracy. Wink News has more — the other tacked-on tax changes involve wool research, rum, and racetracks.

A Taxing Matter’s Linda Beale has a nice list of links on the credit crisis and bailout, tackling the various regulatory changes that made the recent financial mess possible.

Finally, TaxProf is back with a list of tax gaffes from the Vice Presidential debate. It looks like lots of them were fudges and misphrasings — you can read each one and see how it might have started as a legitimate point, but gradually mutated into something deceptive but compelling

Lots of the latest tax stories revolve around political issues — the Presidential campaign, Congress’ giant new bailout package — but most of the compelling tax issues are still in the background. Let’s hope more attention is paid to the minor things that add up (arrowheads, rum, and frequent audits), rather than just the attention-grabbing headlines. Barring that, I’m hoping for some more entertaining tax evaders.

Debates, Bailouts, Tax Evasion, and Other Taxosphere Tidbits

Tax Rascal — Tue, 30 Sep 2008 02:28:35 +0000

The taxosphere is abuzz with news as the bailout continues to be debated and revised. Meanwhile, day-to-day tax issues still dominate the discussion.

Linda P on Yahoo! Answers has run into a stick tax situation: what do you do if someone was paid off the books for twenty years, and wants to settle things with the IRS? After a while, it can be tempting to try getting away with it for just one more year — but as the answerers show, that’s just a way to compound the problem.

At Don’t Mess With Taxes, Kay Bell wants to know if the home sale tax exclusion caused the housing bubble. As one linked source argues, Maybe it wasn’t speculative mania… Maybe much of it was due to changes in public policy. An even more compelling answer: it was a speculative mania fueled by irresponsible policies, and the promise of further irresponsibility. Paul Caron of TaxProf has more.

In case you were wondering about what happens when you don’t file and don’t fix it, Paul Caron of TaxProf writes about the sentencing of Milton Street, brother of a former Philadelphia mayor. Thirty months in prison for three years of missed filings? Probably not the typical outcome, but still worth noting.

David Zaring at Conglomerate asks who won from the bailout. I think it’s too early to tell: some big financial players last year thought they were getting bargains when they bought large blocks of stock 50-80% off the high price for the year. But many of those same stocks have dropped further since.

Russ Fox of Taxable Talk finds a theme in recent tax evasion stories. One of the best: Attorney Christopher Uhl allegedly withheld money from his employees’ wages for payroll taxes. That’s good. He also allegedly didn’t remit that money to the federal government. That’s not good.

Five Cent Nickel has the full story on the Washington Mutual takeover. It’s always good to review these, even if you’re already familiar with the process. In all the excitement of a multi-billion dollar deal done as quickly as possible, it’s easy to miss some details.

The Tax Foundation elaborates on all of the errors and omissions made by Barack Obama and John McCain at the Presidential debate last Friday. There are fewer mistakes than I expected, and they revolve around things like the net present value of inflation-adjusted changes, or the indirect impact on individuals of simplified corporate taxes. Overall, easy stuff to mess up.

James Edward Maule of MauledAgain considers the effect of a financial transaction tax. His essay also explores a few other funding options, and explains some of the more misleading rhetoric surrounding the bailout. A must-read.

Today in the Taxosphere

Tax Rascal — Tue, 23 Sep 2008 04:17:39 +0000

Many bloggers are still processing the effects of the recent financial meltdown and bailout. Here are a few fresh views on that and other matters:

Five Cent Nickel explains what happens to your mortgage if your bank goes under. Part of the trouble with the mortgage boom was that the mortgage was disconnected from the people who originated it — you might live a block away from your mortgage broker in Dubuque, and have no idea that your mortgage was being traded back and forth between hedge funds in Greenwich, bankers in London, and sovereign wealth funds in Dubai and Beijing. But that disconnect works out in your favor when the bank you have a relationship with collapses.

An anonymous poster on Metafilter wants to know if he’ll get audited because his family refuses to pay income taxes. Lots of good comments on how far the IRS will go to collect (and how far they won’t go, too!).

Linda Beale at A Taxing Matter lauds Rhode Island’s new disclosure rules. We all know how much we pay, but in Rhode Island they’re about to find out exactly what they get, too.

The editorial staff at the Wall Street Journal launches a full-bore criticism of Joe Biden’s tax rhetoric. Meanwhile, The Angry Reporter responds, angrily.

On a lighter note, Don’t Mess With Taxes parses Tina Fey’s Emmy speech to find out which cities and states treat the TV and movie businesses nicely.

Today in the Taxosphere

Tax Rascal — Fri, 19 Sep 2008 23:37:58 +0000

Interesting Tax blog links from around the Internet:

MauledAgain wants a “greed tax”: The tax would apply when a person’s or entity’s attempt to accumulate wealth, rather than “trickling down” benefits to society generally, harms society. Since ’society’ is made up of individuals, not all of whom are harmed by such actions, this sounds like a reinvention of the Tort system.

David Zaring at Conglomerate is grudgingly happy that bailouts are playing by the rules again. He wonders if they might even get retroactive Congressional approval for earlier bailouts. I think the latter is likely — once Congress says we should spend our tax dollars a certain way in the future, it should be easy to convince them that we should have spent that way in the past.

alorasalia at AnswerBag wants to know if paying higher taxes is patriotic. The easy answer is the currently top-rated theory that if paying less taxes than you owe is bad, paying more taxes must be good. Of course, this theory allows you to conclude that if shoplifting is wrong, rampant consumerism is a moral imperative.

Silicon Valley Blogger at the Digerati Life rhetorically asks where to invest after the stock market tanks and, refreshingly, says to hold on to the same stocks as before.

Kay Bell at Don’t Mess With Taxes has some income tax statistics that may shock you. Apparently Obama and McCain intend to make history their first term.