Tax Rascal

Five Simple Rules for Keeping Your Taxes Straight

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As complicated as taxes are, most of the problems people face with taxes don’t involve missing some detail of the tax code — though that does happen. Most tax problems start when a routine filing is complicated by lacking the right information, waiting too long to start working on taxes, or forgetting the tax considerations involved in their decisions. Here are a few simple rules to keep you on track:

  1. Always right it down — better yet, type it up: whenever your accountant tells you something, whenever you make a decision that might have tax consequences, and every time you make a major purchase or sale, make sure you’ve recorded it in a safe place. The best thing to
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Tax Q&A: “What is my tax liability when I sell stock?”

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This depends on how much you made, and how long you held it.

To calculate the first, find out how much you paid for the stock, and how much you sold it for (be sure to account for stock splits, but not for dividends, warrants, and spinoffs). For example, if you bought 100 shares at $25 and sold them at $30, your capital gain is 100 * (30 – 25), or $500.

Next, you’ll need to calculate your holding period. Your holding period is basically how long you’ve owned the stock, but the calculation is a little strange. First, you’ll start on the day after; you made the trade: if you bought on September 15, your holding period begins … Read more...

Who Audits the Auditors: The IRS Slams Tax Preparers, But For Good Reason?

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A recent IRS survey revealed that almost two thirds of tax preparers not enrolled with the IRS make errors in the returns they prepare. This study is illuminating, first for what it reveals, but also for what it obscures.

The first thing to keep in mind is that the study was more limited than the headlines indicate. According to the New York Times,

The report was done by the Treasury Inspector General for Tax Administration, the independent oversight arm of the I.R.S. Agents posing as taxpayers solicited and paid for returns at a small sample of 28 unenrolled preparers — 16 of them at small mom-and-pop shops and 12 at chains.

Usually, a sample size of just 28 isn’t … Read more...

Who Really Pays Sales Taxes?

Categories: Uncategorized

That’s actually a fairly complicated question. From an accounting standpoint, you’re paying all of the taxes. But from an economic standpoint, the question of who pays the taxes depends on the elasticity of the product.

Elasticity refers to how use responds to price changes. For a product that’s competing directly with lots of other, similar products, elasticity is very high: if a gas station raises their prices 5%, but the one across the street keeps prices constant, nearly all of first station’s customers will desert it.

But for a low-elasticity product, the opposite is the case. If you consider an addictive product (like cigarettes or alcohol), or a cheap product that you have to buy repeatedly to make an expensive … Read more...

Tax Cuts Killed the Three-Martini Lunch

Categories: Tax Policy

Do income tax rates really matter? The intuitive answer is that they must — a higher income tax discourages people from working as hard as they might, but also provides extra funds to the government. Oddly enough, neither of these points are quite true: according to economist Kurt Hauser, government revenue is always about 19.5% of GDP, whether top tax rates are 91% or 28%. Meanwhile, a glance through the list of countries in order of top tax rate shows that there isn’t a strong relationship there, either: economic basketcase Zimbabwe is right next to Australia.

It’s easy to take this information as evidence that tax rates are completely meaningless the long run. But that’s a little hasty. A … Read more...

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