Optimists, Pessimists, and Con of All Kinds
by Byrne Hobart
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.