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Paying Caesar Whatâ™s Due Caesarâ”It Isnâ™t About Taxes

July 25, 2012 by

caesarLet’s talk about an unpopular topic: taxes. I have no statistics to back this up, but I think many, maybe most, Christians fall somewhere in the anti-tax camp. Maybe it’s just human nature that we all feel as if we’re paying too much for taxes. Or maybe it’s the conflict we feel when we see our tax money being used to pay for what we consider to be unholy activities.

In some places I’ve even seen the question brought up of should we even be participating in what government is doing?â

If we look to the Bible to support anti-tax positions, we won’t find much. In perhaps the most concise pronouncement on the subject, Jesus tells us this:

So give back to Caesar what is Caesar’s, and to God what is God’s.ââ”Matthew 22:21 (NIV)

There’s not much reading between the lines❠in this verse. The topic was taxes, and Jesus was telling us to pay them. Even more, Caesar was representative of the hated, conquering Romans; it was anathema to a Jew in the first century to support taxes paid to the Romans, unless of course you were a tax collector. So not only is Jesus telling us to pay our taxes, but also that we should pay them even if the government we’re paying them to isn’t considered legitimate.

Paying taxes is about obeying authority

Paying any given tax, or any tax at all, isn’t really about paying taxes. It’s about obeying authority. We don’t have to like a tax, but we are commanded to obey authority, even authorities we disagree with.

Let everyone be subject to the governing authorities, for there is no authority except that which God has established. The authorities that exist have been established by God.ââ”Romans 13:1 (NIV)

Obeying authority is honoring God. He establishes authority as a way to prevent us from living in chaos, which is a good bit worse than the worst governmental system we can ever concoct.

And there’s one other thing. All authority is a model forâ”and ultimately points towardâ”God Himself. When we disobey authority, we’re disobeying God. If that authority is corrupt, evil, or heading in the wrong direction, God will deal with it in His own time. By honoring that authority, we’re not only keeping ourselves in good standing with God, but we’re also demonstrating faith that He will provide for us no matter the intent of the authority.

âThis is also why you pay taxes, for the authorities are God’s servants, who give their full time to governing. Give to everyone what you owe them: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor.ââ”Romans 13:6-7 (NIV)

The democratic conflict and the Bible

For the most part, our opposition to paying taxes, or to a given level of taxes, is found not in faith, but in secularism. We live in a democratic society where we have rights as citizens, and where everyone has an opinion. We can challenge paying a tax based on our rights as free citizens, but we shouldn’t cite the Bible as justification for the challenge.

Does that mean that challenging a tax is unbiblical? Maybe so, maybe not. But our political system is democratic (actually it’s a representative democracy) which means we can challenge a tax or level of taxation and still be operating within the commands God gives us in the Bible. It’s actually a unique position in history and even today in much of the world. And it’s also confusing.

The point is, we should never take an anti-tax stand based on the notion that God doesn’t want us to pay this or that tax❠or that a tax might be anti-Godâ. No, God wants us to obey the authorities, and that means we need to pay our taxes.

This is an uncomfortable subject for many, and that includes me. I’m solidly in the taxes-are-too-high camp, and I really wish God had some condemnation for taxes, but He doesn’t. Given that, we need to bend our own desires and actions to the Word of God, and not try to make Scripture work for our own personal benefit.

What do you think should be the Christian’s attitude toward taxes? Can you find anywhere in the Bible where God condones not paying taxes?

photo by 58308412@N00

Filed Under: Taxes

Getting Paper Bonds at Tax Time

April 7, 2012 by

Savings bonds vs savings account CDSince the Treasury department stopped selling paper bonds in January 2012, the only way to get paper savings bonds is through your tax refund. This is easy when you are due a refund â“ all you have to do is fill out Form 8888 and indicate how much of your refund you’d like to go into Series I US Savings Bonds, from as little as $50 up to $5,000. But what if you’re not receiving a refund?

There is another way to purchase them at tax time when you actually owe money â“ that is, by overpaying your taxes. Prepare your tax return and find out how much you owe. Then file for an extension using Form 4868. On line 7 of the form, add how much you’d like to get in paper bonds on top of how much you owe. So if you owe $900 and you’d like to get $1000 worth of savings bonds, put $1,900 on this line. Put the amount of how much you’d like to get in paper bonds on line 68 of Form 4868 (Amount paid with request for extension to fileâ). Send your extension along with your tax payment to IRS and wait for a week or so until your check clears before filing your tax return.

When you file your taxes, fill out Form 8888 and put in that extra amount in the US Series I Savings Bonds section. You can buy paper bonds for yourself, or as gift to a loved one. Send in your forms, and wait for the paper bonds to arrive in the mail! If you earned below $57,000 in 2011, you can file online for free at MyFreeTaxes.com.

Gifting paper bonds to a loved one at tax time is one of the most convenient refund options and a great way to help a child learn how to save. You may have received these bonds as gifts from your parents in your childhood. Many Americans learned to save only after the federal government started the U.S. Savings Bond program in 1935. The program has since helped millions of Americans save for their dreams and pay for their first home, college education for themselves or their children, or retirement.

Paper bonds can also be an ideal option for the one in four Americans who have no bank accounts or underbanked as the bonds will be mailed to you, can be stored anywhere, and have no monthly fees unlike a savings account. With an excellent current interest rate of 3.06% that’s better than most savings accounts, what’s not to like? Get these with your tax refund while they are still available! And who knows, these bonds may become a collector’s item in the future.

For more information, visit Bonds Make It Easy.

Filed Under: Taxes

Six Questions About the Federal Income Tax

April 2, 2012 by

questions about the federal income taxTo me, taxes are sort of like rain in Seattle. There’s too much of it, too often. It arrives at the most inconvenient of times, and just when you thought you couldn’t get any more, more of it arrives until you’re drenched in it.

In the hopes of properly celebrating this year’s federal income tax season, I thought I would write on the topic for the purpose of some stimulated thought and discussion. This time, however, instead of giving reasons for why I’m not too fond of the the federal income tax, I felt inclined to pose a series of questions.

My motive for asking questions, rather than providing reasons, is because we should not have to explain why a law is bad. Politicians, or the supporters of a law, should have to explain why it is good. I included some of my remarks on the subject as a way of explaining my rationale each question.

1. Why is it the government’s business how much its citizens make?

Some may argue that it’s to ensure that people aren’t stealing or obtaining their money illegally, but that argument assumes citizens are guilty until proven innocent, i.e. they have to fill out a tax return to prove their innocence. Unless the government can prove someone is making money illegally, there is no moral reason why we should be required to report our incomes. If it’s not the government’s business what we do in our personal life, as long as it is legal, why is it any of their business what we do professionally, as long as it is legal?

2. Why does the income tax have to be so intrusive?

Americans love to complain about the federal government’s invasion of privacy through unauthorized wiretappings, data mining, and Internet monitoring, or even what books they check out at the library or comments they post on Facebook. Before someone whines about security cameras at traffic intersections, however, perhaps they should sit down and consider how much personal, intimate knowledge they are legally required to provide to the same government every April as a part of their income tax return. It’s naive to think that this sensitive information is protected and safeguarded from the same misuse and abuse as information obtained from a wiretap or data mining. And, again, why should any of this be the government’s business? Surely an employer can collect an employee’s income tax as a part of their paycheck and then submit it to the government in one large sum to preserve anonymity.

3. Why does it have to be so complicated?

Even if one were to agree that there should have an income tax, there is no excuse for the length of the IRS Tax Code. It is a gargantuan, byzantine labyrinth of a legal document that is so convoluted and contradictory that one has to spend hours and hours of one’s personal time to properly submit their tax return in the same way a person has to bushwhack their way through a jungle or be driven to  get a tax llm  just to file. It also favors three distinct groups: individuals who can afford to hire a tax lawyer to take advantage of loopholes, the politicians who wrote the tax code themselves, or those who are eligible for the various tax breaks and tax credits. A law that every working American has to follow should be simple to understand and should be applied equally.

For example, the income tax during World War II was much more simple and easy to navigate. A  1943 propaganda cartoon made by Disney showed the income tax at the time asked only two simple questions: How much money did you make and how many dependents did you have? (Skip to 2:52 if you want to see where Donald Duck fills it out).

There were no loopholes, no tax credits or breaks.

During the war, it was imperative that the government receive a steady stream of income, and they couldn’t afford to have such a confusing system as the one we have now. Granted, it was designed for a mass audience and was actually more time-consuming than they portrayed, but it is infinitely better than what we have at the moment.

4. Why can’t we just have a sales tax?

A sales tax would work just like a state sales tax. It would be more anonymous, efficient, simple and less costly to both Americans and the federal government. There would be no need for the bullying, secret police-like tactics of IRS agents and allow Americans to have maintain their privacy. Additionally, for those who are concerned about loopholes and unfair tax breaks, it is impossible to get around a sales tax, unless the sale is conducted unofficially or you simply choose to not conduct a sale. Much of the workforce employed to deal with taxes, such as tax attorneys, would be diverted to more productive enterprises.

5. Why do citizens owe the government a part of their incomes?

The income tax essentially says that the government deserves a portion of the money its citizens earn. Note that this is different from a sales tax, which is is dependent on how much a person spends. An income tax is based on one’s productivity, not consumption.

The totalitarian logic that the government owns the fruits of its citizens’ labor is evident when politicians use double-speak expressions like “we can’t afford a tax cut.” The implications is that the government owns your money and an income tax is not what it takes, but what it holds onto. The rest of the money, the money you receive from your work or business, is what the government “allows” you to keep.

Furthermore, this has led to the discussion of whether private citizens are paying their “fair share” of taxes to the government; the inference is communist/socialist at its core. You, the citizen, owe the “collective” a certain part of your earnings, and it is the job of the collective to make certain that you are fulfilling your obligations. The money does not belong to you, even though you earned it. There is no concrete definition of what constitutes as being “fair,” “wealthy,” and “rich,” however, so politicians self-appoint themselves as the judge of what those terms mean and, more importantly, to whom the rules apply and do not apply.

And in an appropriately Orwellian fashion, when it comes to the federal income tax, all working Americans have to pay the income tax, but some Americans pay more federal income tax than others, or all of it. Almost half of American taxpayers don’t pay the income tax, and they’re not from the top half (this doesn’t include payroll tax and other taxes, though). According to the IRS, in 2009, the top one percent(ers) paid 36.7 percent of all federal individual income taxes, but earned only 16.9 percent of adjusted gross income.

6. Where in the Bible can one justify instituting an income tax?

(Note: This is not a question for non-Christians, i.e. free-thinkers, secularists, libertarians. It’s for Christians who think the income tax is necessary or good)

As Christians, we’re commanded to obey the law and pay (as little as possible) the taxes imposed on us by the government. But nowhere does it say that we have to like those taxes or believe they are ethical, practical, or moral. Nor does it prohibit us from doing everything within our power to abolish them in a legal and nonviolent manner. As Christians, our wealth and the income we earn belong to God, not to the government or the “collective.”

And it’s interesting to see how God regards the income tax throughout Scriptures. The only tax instituted specifically by God occurs in Leviticus and Numbers, when he commands the Israelites to give the Levites a tithe (a tenth) as compensation for their ceremonial work and because they were not allocated land like the other 11 tribes were. The prophet Samuel even warned the Israelites not to appoint a king because, among other things, he would institute the historical equivalent of an income tax (1 Samuel 8:10-18).

Filed Under: Taxes Tagged With: , ,

3 Resources You Need to Know About Before Filing Your Taxes

March 28, 2012 by

Resources you need to know about before filing taxesSo you’ve spent the last month dreading the thought of doing your tax return, but the day has come and you know it’s time to get it over with. You sit down and pull up your tax sofware, and start answering questions. Name? check Address? check….Then, you run into that question that you’re unsure about. It might be the number of deductions you can take, whether you are eligible for this credit, or how many business expenses you can claim. Whatever it is, you don’t want to get it wrong and have the IRS come knocking at your door. But, you have other work that needs to get done, and you just want to get this dang tax return over with!

Here are three options you should consider that I’ve tried and tested over the years. Each one has its merits.

1) The free solution

The IRS actually offers a free helpline that you can call to get tax filing help. Since it’s a free service (besides the 15 minute wait time), it doesn’t hurt to try this one out. If you’re lucky, you’ll get in contact with an enrolled agent who can help you with your question. However, the help service is notoriously spotty, with a recent Washington Times study showing 3 out of 10 people who call the toll-free helpline won’t get through to a human being, and those that do are often redirected to the IRS website.

2) The costly solution

Hiring a last-minute CPA or tax assistant to answer your question is also a popular solution (especially for business owners). However, beware that this costs anywhere from $100-200 per hour, and is limited to availability as the tax deadline approaches. The benefit here is you will be getting someone to do your taxes for you, whose job is to keep up to date with the current tax code.

3) The happy medium

There’s a clever new website called Task.fm that offers a place where tax professionals will answer your personalized tax questions quickly for a set cost. For those of you with one-off questions that need to be answered, I would highly recommend looking into this. For an affordable rate (~$20), you get a certified CPA who will answer your question immediately. Not a bad deal if you ask me!

All said and done, what you’re looking for is a quick, accurate, and affordable answer to your tax questions.

If you have the disposable income and are willing to pay for someone to do your taxes, hire a CPA (make sure you do your due diligence!).

If you are willing to do the gritty work of reading and understanding the tax code yourself, use the IRS helpline.

If you just want an answer quickly for an affordable rate, go to Task.fm.

Filed Under: Taxes

Sole Proprietorship Tax Deductions You Need to Know About

March 2, 2012 by

sole proprietorshipA Free Money Wisdom reader recently emailed me and asked about available tax deductions for a sole proprietorship.  When he first asked me about it, I was clueless!  I’m not a tax professional and have had to only worry about W-2s in the past.

Although I didn’t know how to answer his question at first, I set out on a quest to find the answer.  As I researched, I found some truly cool tax deductions for this type of tax filing.  Before we get into the tax deductions I found, lets go over some bullet points regarding a sole proprietorship and how you file:

-A sole proprietorship does not constitute a legal entity, it’s simply a name for a person who runs a business and is responsible for all debts.

-Any contact or business agreement is done with the person’s name, not the company name.

-Filing a tax return is a piece of cake due to only having a two page process!

-No need to pay a third party company to audit your books.

-As a sole proprietorship, you are only taxed on the profits.  That is your total revenue minus your operating expenses.

-You’re allowed to deduct things such as travel expenses, computer rental, and start-up costs (more on this below).

So, when it comes to actual deductions you can file for, I’ve compiled quite the list for you.  Some of the following are well known deductions and others will surprise you!

 

Meals with Clients

If you’re  constantly  meeting new people and the talk was mainly about your business, then you can write off meal expenses.  Take someone out to dinner?  Write the dinner off.  Went out to breakfast and signed up a new supplier because of it?  Write the breakfast off.  Be careful with this though because the IRS only allows you to deduct 50% of the bill.   In other words, the IRS wants you to pay for your meal and not deduct it…

 

Travel Costs

Traveling can really add up between client visits and going on errands for your business.  Thankfully, the IRS lets you write these costs off.  The IRS gives you two options for this: deduct using the standard mileage deduction or deduct what you can back up with receipts.  What you choose should depend on how organized you are.  I’d rather just take the standard deduction, can you imagine how many receipts I’d have to keep track of?

 

Health Insurance

If you buy health insurance as an individual, these costs can be deducted.  This cost can also be deducted for any spouse or dependents you might have.  Now, if you were paying for  insurance  through an existing employer, then this deduction would be off limits.

 

Home Office Deductions

Many people steer away from this because they are nervous about whether or not they are eligible.  The IRS is expecting you to write this bad boy off so do it!  Plus this is one of the bigger deductions you can have.  You are allowed to deduct a portion of your rent, home repairs, utilities, and insurance.  You can even deduct that new mop you bought for cleaning around the house!  Keep good records and you can deduct these things with confidence.

 

Business Equipment

Section 179 of the IRS code is very specific about this deduction.  If you use things like computers, printers, and foxes exclusively for your business, you can deduct all of the expenses!  This  alleviates  some hesitation with buying more expensive equipment.  You might as well because you can write off the full amount.  Spend, spend, spend!

 

Company Phone

If you use a phone  strictly  for your business you can deduct every expense  associated  with it.  This includes the purchase price of the phone and the monthly costs.  If you decided to opt out of a dedicated phone, you can choose to deduct the long distance calls and other misc. services like three way calling.

 

Tax Preparation Costs

Although you really shouldn’t need to pay someone to prepare your taxes, in the event you do, you can deduct the tax consultant’s itemized bill.

 

Retirement Savings

Very few people know about this nugget of gold.  If you’re investing for your retirement, anything you put away can be deducted on your tax return.  If you’re someone who’s maximizing a SEP IRA, this is just common sense!

 

Sole Proprietorship = Big Tax Deductions

Now you know the many tax deductions that the IRS allows for a sole proprietorship!  This has been a learning experience for me and hope you can take away a little something from this article.  Remember to file your taxes, the deadline is fast approaching!

FYI, if you haven’t filed your taxes yet, I recommend Turbo Tax.  You can click on the banner below:

 

Filed Under: Taxes

Turbo Tax is the King of Tax Filing

February 16, 2012 by

It’s tax season and the TV commercials are in full swing vying for your money.  Who will you choose this year?  Instead of going back and forth between the multiple tax preparation companies, why not go with the big man on campus, Turbo Tax.

Turbo Tax has clearly set itself apart at the number one “go-to” tax preparation software for the majority of Americans.  Some see them as a monopoly, but I see them as a company out to provide the best possible tax filing experience for anyone in any walk of life.

OK, enough talk, let’s get into the review.  But first, here are some bullet points about Turbo Tax as a company:

  • Turbo Tax is based out of San Diego, CA
  • It was originally created by Michael Chipman of Chipsoft
  • Turbo Tax was bought out by the software giant Intuit in 1993
  • To this day, Turbo Tax is the most popular tax filing software in the United States

 

Turbo Tax is a breeze to use

Each time I’ve used Turbo Tax, it has actually been pretty fun and very straight forward.  To make things even easier, Turbo Tax has the ability to save all your  information  from the previous year. This is a wonderful feature that is sure to save you some time.  If you haven’t moved or purchased a house, nothing has really changed, making this feature a time saving gem.

Another key feature that makes Turbo Tax extremely easy to use compared to other software programs is the “interview” style questioning.  When you fill out your info for this year’s current taxes, you’ll find yourself answering questions that Turbo Tax asks.  Assuming you answer these questions correctly, the rest of the filing is easy and all possible deductions are applied.  No headaches about a missing deduction or a tax form, Turbo tax is set up to be your second check!

I also cannot rave enough about their “flag feature.”  Suppose you are working through your taxes and come up on a question and realize that you have missing paperwork.  No worries, because you can simply flag it!  Turbo Tax gives you the ability to write a small note too, pretty cool if you ask me.

 

The Turbo Tax guarantee

I’m sure you’re tired of all the supposed “guarantees” in life, but Turbo Tax actually delivers on their promise.  Unlike other software programs, Turbo Tax offers a Maximum Refund Guarantee. Basically, if you receive a higher refund with another software program, Turbo Tax will refund you the money you paid to use their software!  It’s icing on the cake and gives Turbo Tax customers extra peace of mind when it comes to receiving the highest possible tax refund.

A second guarantee that Turbo Tax offers is their 100% Accurate Calculations Guarantee.  In the rare event that Turbo Tax screws up on your taxes and the IRS comes after your wallet, Turbo Tax will be there to pay for any mishap on their part.  This takes accountability to a whole new level.

 

Many advantages

-Pricing is tiered, so you will only pay if you need to.  Turbo Tax does a great job of letting you know if you need to upgrade.  You never get the feeling of forced marketing.

-Turbo Tax remembers your information from the previous year.  This is a life saver!

-Excellent tech support and completely free tax support.  Real people, not machines…

-Cool feature that tells you the chances of your return being audited.

-Online community where you can ask questions and bounce ideas off of people.

-Ability to import tax documents without the need to manually input data!

-Maximum refund is guaranteed, Turbo Tax checks for any and all possible deductions.

-Offer to do your taxes offline through a CD.

 

Only one real  disadvantage

-Higher cost that other online filing software for in state tax returns

 

Cool audit feature

This is another cool thing about Turbo Tax that very few other software companies offer.  With audit support and defense, you can be rest assured that your tax refund is perfect and ready to go for the IRS after it’s submitted.  You can purchase the audit defense for $39.95 and in the case of an audit a Turbo Tax representative will be your messenger with the IRS so you don’t have to deal with them.  This is a cool feature for filers who have more complicated tax returns.

 

Various Turbo Tax package options

Like anything in life, you have options.  Turbo Tax gives you the ability to choose your tax preparation package depending on what you’re filing and to what extent.  Below is some information on each package and the corresponding prices:

Free Edition: Got a 1040EZ tax form?  You’re good to go and it’s completely free!  This package will cover all your bases and will even let you know if you need to upgrade depending on how you answered certain questions.  A state income tax return will be additional.

Deluxe ($29.95): This is what I typically use.  It gives you the option to itemize and gives you access to even more deduction options.  If you’re filing a state income return, it will cost additional.

Premiere ($49.95): If you’re a day trader or have made multiple investment moves, this package was made for you.  It’s also fantastic fro people who own rental properties.  It will search for related deductions and ensure that you get the biggest refund possible.

Home and Business ($74.95): This is for people who run a  solo company and also want to file their own personal taxes from a day job.  Something to note here, this package includes everything from the Free, Deluxe, and Premiere packages so you know you won’t be missing out on anything.

Business ($129.95): This is for you if you run a business.  It could a small LLC or a Corporation. Any type of business will require this package.  This package double checks all the deductions that can be associated with your business.

 

Turbo Tax is a no-brainer

At the end of the day, you want to choose a tax filing company that offers a wide range of options, insane value, and fair pricing.  Turbo Tax is just that.  Not only is it easy to use, but with their support staff and outstanding customer service, the choice is clear.  File your taxes with Turbo Tax this year.

 

Filed Under: Taxes

5 Stupid Ways to Waste your Tax Return

May 12, 2011 by

tax refund

I was talking recently with a friend of mine and he was telling how excited he was to spend his tax return on a new TV.  Immediately, I gave myself a face palm.  No!  Don’t go out and spend your tax return!

Sometimes, I feel like people think that their tax return is free money from the government. IT ISN’T! This is money that was yours in the first place, the government just took too much of it during the year.

Splurging your tax return is just one bad example of what NOT to do with your tax return this year.  Here, I have compiled ten other ways you should avoid spending your tax return this year.

1- Hitting the casino

You’d be surprised at how many Americans do this.  Instead of investing their ta return, they throw their own money down the drain.  This has never made sense to me and never will.  Avoid the slot machines!

2- Upgrading to a better car

If your car is running fine, why waste your money on another car purchase?  Owning a car is expensive as it is.  Don’t blow it on something that already works.  Contentment is key for this area of personal finance.  We all want “better” or “cooler” cars but we sacrifice those types of purchases for the sake of sound personal finance.  I advice you to avoid this blunder.

3- Expensive clothes

I know one is hard for me to avoid, considering I live the mecca of fashion (LA).  For this temptation I just go back to my old saying “are my clothes good enough?”  If they are, why waste money on nicer clothes?  For example, I have two pairs of jeans and a pair of dockers, that’s it!  I think if you organize your closet and live a minimalist lifestyle, you’d be more relaxed and stress out less about what you’re wearing. Unfortunately, this consumerism disease comes down to the need to impress people. Until you conquer that struggle, none of what I’m saying will help you…

4- Risky investments

Can you say the latest fad to invest in gold and silver?  Be forewarned: it’s not an if the market will slap you, it’s WHEN.  Don’t put your money in individual investments. Always invest in broad based index funds and ETF’s. Protect yourself, take your refund and invest it in low risk investments.  Remember, the slow and steady wins the race.  I don’t know about you, but I’d rather live comfortably than be broke at retirement due to a high risk investment decision that went belly up.

5-  Hotel or restaurant outing at the most expensive place in town

Ok, let’s think about this one.  If your tax refund was your money in the first place, would you have dwindled your money away at an expensive hotel or restaurant on your normal budget?  Hmm, most likely no.  Live below your means and invest regularly, it’s the NEW American way!

So, now I’ve shared 5 stupid ways to spend your tax return, you might be asking “well, what should I do with it?”  First and foremost, you should pay off debt immediately. The goal to become debt free should be a priority for you.  If you don’t have any debt, it’s critical that you boost your emergency fund.  I recommend 6 months worth of expenses. The last thing you should do with your tax refund is invest it in low cost options like your Roth-IRA or 401k.  Invest, invest, invest.  Did I mention invest? If you are 21 and reading this, start saving NOW.  If you are 40, start saving NOW!  Time is truly of the essence when it comes to retirement.  The math is simple.  The sooner you start investing, the sooner you can retire.  My goal is to retire at 60 or earlier.  Your goal might be different.  Whatever it is, start investing today.

Filed Under: Taxes

Tax Strategies and Tips from Certified Tax Coach Dominique Molina

March 26, 2011 by

(The following is a guest post by Jake who runs  NerdWallet, a  a website that helps educate consumers about credit and find money-saving deals on credit cards.  Enjoy and comment!)


With April 15th looming, tax strategies are on the minds of many Americans. I recently had the chance to chat with Dominique Molina, co-founder of Certified Tax Coach regarding tips and advice the average person on the street can implement to make sure their family’s tax strategies are as strong as possible. Here’s a quick rundown on what she had to say.

Corporate structure:

Personally, I don’t know why any couple wouldn’t have some sort of small business with all of the potential tax benefits, but that’s another article entirely. Molina points out however, that certain expenses are deductible under some business formats, but not others. For example, health care expenses account for a large portion of many business budgets, but fringe benefits are not deductible within an s-corp for its owners. So it pays to look around and see which business entity leaves you keeping more of your own cash at the end of the tax year.

Social security tax credit:

There’s currently a credit allowing a two percent reduction in withholding that applies to both business owners and employees. And it’s applicable on incomes up to $106,800. So if you have the capacity to earn more this year, it can be worth it to take advantage of the additional savings, according to Molina.

Waiting until the filing deadline to think about tax strategies is a mistake:

While what’s done is done as far as your spending for 2010 is concerned, Dominique stresses that planning ahead and taking a more analytical approach with your family’s tax plan is a smarter move. At this time of year says Molina, one of the only tax strategies left for folks to use is a last-minute retirement contribution. Be warned however, that this can come back to haunt you later on if you haven’t planned ahead. Molina calls the popular end-of-the-year retirement fund strategy used by many tax pros as an easy way to appease customers with a ticking tax time bombâ. Why? Because you’re trading a lower tax bill now for a higher rate years later when you have a higher income and tax rates increase. Additionally, she says, these retirement accounts often have inflexible withdrawal parameters.

Be careful about using the delayed tax option on last year’s Roth conversions:

For 2010, the earning limits for converting cash into the popular Roth IRA accounts was increased. But you have to pay taxes on the amount you convert before you can put it in the account to grow tax free. To sweeten the pot, taxpayers were offered an automatically delayed payment option to handle that upfront tax payment in a split between their 2011 and 2012 tax filings. If you don’t opt out of that automatic delay says Molina, you lose the ability to pay at the lower 2010 tax rate, provided you’re confident that your tax rate will go up in the next two years. So if you have extensive losses for 2010, or are pretty sure your earning level will be rising drastically in the next two years, then you may want to seriously consider paying that tax bill now to save money.

Tax strategies play an important part in your family’s wealth-building plan. Put these ones to use if they fit your situation, and sit down with a proactive tax pro to determine the best plan for this year as well as long term.

 

Filed Under: Taxes

Are Vice Taxes Ethical?

January 10, 2011 by

The government has always been keen to pry into the personal affairs of citizens in order to make a buck. The most intrusive way they get away with this is by implementing taxes on certain things condemned as sins or vices; in the form of a Vice Tax. By implementing a vice tax you might be hindering a small business’ chance to grow by requiring extraordinary licenses and regulations. It also impedes in the personal liberties we have as human beings by telling us what we should and should not use. Here are some examples of what the government taxes us on:

Tobacco Tax

While I am not advocating the habit of smoking, many people who choose to partake in this activity have been persecuted to the fullest extent without being completely ostracized from society. First it was banning smoking on planes, then banning it in restaurants, then in bars, and now in some cities you can’t even smoke on the sidewalk or in parks. Add these smoking restrictions on top of heaps of taxes which might deter people from picking up the habit and encourage quitting, but make it unfair for people who just want a pack or a cigar to go with a night out. While I do not enjoy the smell of smoke on my clothes, I can live with it and don’t believe in the suppression of anyone’s right to put whatever they want into their body.

Alcohol Tax

While the dangers of alcohol can not be argued, most people enjoy drinking in moderation as a way to stay social and take the edge off of a long day. While most know how to use the substance properly, there are some who choose to get into cars and make bar owners look for new business insurance quotes because of the impending lawsuits. But should the business be punished for the actions of one irresponsible patron?

Fat Tax

The newest foray into the vice tax system is the fat tax. With rising obesity rates, heart disease, and cancer; the fat tax might seem like a viable option for saving the country money on health care costs. By taxing foods that might not be the best for us, the government is making a decision to tell us what we should and shouldn’t eat. Resources would be better spent on education about nutrition and exercise instead of the banning of certain things.

While some of these taxes may seem like good ideas at the time; they could lead to a slippery slope of taxing everything. For those of us who practice moderation and responsibility Vice Taxes seem like a kick to the teeth.

Filed Under: Taxes

Bush Tax Cuts Explained

December 19, 2010 by

There has been a lot of confusion and ignorance going around revolving the Bush tax cuts extension.  Thankfully, Obama and the Republicans worked together and got this thing passed.  Here’s a good article explaining the details aurrounding all the drama lately…

The timeline:

  • Monday 12/13: The Senate voted to end debate (cloture) 83-15
  • Wednesday 12/15: The Senate vote 81-19 in favor of passing  Senate Amendment 4753 (which amends  H.R. 4853 Middle Class Tax Relief Act of 2010)
  • Thursday 12/16: Despite all the complaints by House Democrats, the House of Representatives approved the $858 billion tax deal on a final vote of 277-148.
  • Friday 12/17: It’s expected that President Obama will sign this bill today.

If you’re one to keep track of who scored which political points, then I think each side came out with what they wanted. President Obama and Democrats received tax cuts for the middle class, extension of unemployment, and a stimulus by way of a payroll tax reduction. Republicans received tax cuts for the wealthy as well as a reduction in the estate tax from what it would’ve been in 2011 given no action. Fiscal conservatives, who were all the rage in November, saw nothing.

Bush Era Tax Cuts

The Bush era tax cuts, ushered in with bills from 2001 and 2003, will be extended for two years.

In addition to extending the tax cuts, there will also be a payroll tax holiday of 2% for employees. Normally, you pay 6.2% in payroll taxes (Social Security and Medicare) on your first $106,800 of earnings. For 2011, you would only be paying 4.2%, a maximum reduct of $2,136.

Unemployment Benefits Extension

The extension of unemployment benefits died a few weeks back and rose from the ashes as part of a compromise. Originally the highest tier (extended benefits), 99 weeks, was reserved for those in states (25) with high employment (8.5%+) and the deadline was November 30th. If you want a primer, here’s a  fantastic one by Ezra Klein of the Washington Post as well as a discussion of unemployment in general.

Estate Tax

The  estate tax, which expired this year and was scheduled to return next year at 55% with a $1 million exemption, will return with a top rate of 35% and a $5 million exemption (remember, this doesn’t include $1 million you can give away without paying a  gift tax and the $5 million is per person, so a couple can pass $10 million tax free).

There were a few smaller (i.e. less headline-worthy I suppose) tax items:

  • A patch for the  Alternative Minimum Tax (AMT), increasing the limits for 2010 and 2011. It’s estimated that the patch will protect 20 million tax filers from AMT by raising the amount of income exempt from AMT. In 2010, the amount will be $47,450 for single filers, $72,450 for married filing jointly. In 2011, it would be $48,450 and $74,450.
  • Maintains the standard deduction for married couples at exactly twice that of single filers and expanded 15% tax bracket for joint filers.
  • Child Tax Credit of $1,000 extended for two years, includes a $3,000 refundability threshold.
  • Earned Income Tax Credit extended for two years.
  • American Opportunity Tax Credit extended for two years.

What do you think?

Source: Bargaineering

Filed Under: Taxes