Jul 212017
 

Wash. D.C. msn.com

If you are looking forward to a retirement spent paying hefty tax bills, a trend called the Roth 401 K has developed to help buy your ticket to happiness.k Once you turn age 70 and a half, you are forced to start taking money out of your retirement plan, the terminology is “required minimum distributions” and every penny you take is taxable income.

Vanguard reports that nearly two thirds of 401 k plans it administers now have the option of saving in a Roth 401 k, rather than the standard traditional 401 k. With a Roth, contributions are made with after tax income. The payoff comes in retirement when you can either skip RMD’s completely or take distributions without owing a penny in tax.Yet less than 15 percent of retirement savers with the ability to save in a Roth 401 k are taking advantage of the Roth option. “I’m from the Midwest, so I use a farm analogy: Do you want to pay tax on the seed or on the harvest,” said David Hays, president of Comprehensive Financial Consultants in Bloomington, Indiana. “The only rational answer is that you pay it on the seed.” That is, take your tax hit early, by using a Roth 401 k is funded with after tax dollars, paying tax on the seed contribution–with the eventual payoff that you will not owe a penny of tax when it’s time to harvest your savings, in retirement.

While Roth 401 k plans are positioned as ideal for millennials who have yet to hit their peak earnings, 40 and 50 somethings who’ve been using a traditional 401 k for a few decades can add valuable tax diversification by switching over and doing some Roth saving. “Taxes are the most expensive thing in retirement,” said Hays. “Think about it, you pay 30 percent or so every time you want to access your money.” For the record, anyone can contribute to a Roth 401 k. There are no limits. Employer matching contributions will continue to be made into a traditonal 401 k account.

  •  07/21
Jul 182017
 

Hartford, Ct. msn.com

Per Capita income, Connecticut’s taxes is a mess. It’s pensions are woefully under funded. It’s deficit is projected to surpass $2 billion, or 12% of its total annual revenue. Hartford is approaching bankruptcy. Conservatives look at Connecticut and see a liberal dystopia, where high taxes have ruined the economy. Liberals, on the other hand, see a capitalist horror show, where the rich dwell in gilded mansions, ensconced in sylvan cul-de-sac, while nearby towns face rising poverty and bankruptcy. Why is America’s richest state floundering ?

The first answer is: Corporations are leaving because of Connecticut’s taxes. Aetna, the insurance giant, is leaving Hartford, where it was founded 150 years ago. In early 2016, General Electric announced that it would move its global headquarters from Fairfield, Connecticut, to Boston. Caterpillar, Motorola, and Kraft-Heinz have all moved offices or employees out of the state, as well. The second answer is: People are leaving because of Connecticut’s taxes. It’s rare for any state to actually shrink, but Connecticut’s population has been falling for three straight years. Meanwhile, only Michigan, Ohio, and Mississippi had slower job growth than Connecticut did over the last two decades, according to Jed Kolko, the chief economist at Indeed, a job site.

For Conservatives, the culprit is just as simple: It’s big government run amook. The Wall Street Journal’s editorial board holds up Connecticut as a poster child of the costs of high taxes. “Connecticut’s progressive tax experiment has hit a wall,” they wrote in April. Conservatives argue that Connecticut’s income, property, and sales taxes have reached an altitude that cannot support economic life. But Connecticut’s taxes and budget shortfall isn’t just about tax rates. It’s about who  is paying the taxes. The richest 0.02 percent of Connecticut households make more money than the bottom 48 percent, according to state reports. This 0.02 percent cluster along the Gold Coast and tends to work in finance.

In the last decade, Connecticut’s millionaire’s have accounted for as much as 30 percent of the state’s income tax-revenue. This is a problem, because the investment income of financiers is volatile. When hedge funds earnings falter, as they have in the last few years, Connecticut’s taxes feel the pain.

  •  07/18
Jul 172017
 

Wash. D.C. Thefiscaltimes.com

The White House an GOP congressional leaders expect much smoother sailing this fall when they seek to enact a tax cut, which is the centerpiece of their agenda–the first major reform of the federal tax code since 1986, including deep cuts in corporate and individual rates. But there is still the matter of Republicans finally resolving their differences over a controversial border tax proposal favored by Ryan and House Ways and Means Committee Chair Kevin Brady of Texas but vigorously opposed by Trump and treasury Secretary Steven Mnuchin.

And just as the health care debate will ultimately turn on questions of cost and the distributional effects of reducing health care benefits and repealing an array of Obamacare taxes, the fight over tax policy this fall will largely come down to a bare knuckle brawl among special interests to determine economic winners and losers. In the latest independent analysis of Trump’s emerging tax cut plan, the Urban Institute projected that the president’s proposals could reduce federal revenues by as much as $7.8 trillion over the next decade. Much of that would be due to sharp reductions in tax rates and elimination of a slew of long standing, onerous tax measures like the Alternative Minimum Tax.

Trump has floated ideas for offsetting as much as half of his individual and business tax cut plan by closing manh loopholes and eliminating deductions. Even then, however, the Trump tax cut plan would add $3.5 trillion to the federal debt over the coming decade, according to the new Tax Policy Center analysis. Without those revenue raisers to blunt the effect of Trump’s proposed tax cut, nearly all U.S. households would receive a tax reduction that averages about $4,400, according to the new report written by economist Howard Gleckman of the Urban Institute. However, the tax cuts would be “highly regressive”, according to the analysis, with high income people getting far more than those with low or middle incomes.

 

 

  •  07/17
Jul 152017
 

Wash. D.C. TheHill.com

The Trump administration and congressional Republicans are working toward unifying around a single GOP tax reform bill, aiming to pass the legislationthis year. But there are still some key differences between the priorities of the White House and the Senate that need to be ironed out. Speaker Paul Ryan (R.-Wis.) and House and Ways and Means Committee Chairman Kevin Brady (R-Texas0 have said that Republicans agree on about 80 percent of a tax reform package. But working through that final 20 percent could take some time. Here are five GOP tax reform issues that Republicans need to resolve.

How long should tax changes last ?  House GOP leaders on tax reform are pushing for the changes to be permanent, but some senators and administration officials have expressed openness to temporary tax changes. Procedural rules play into this debate. If Republicans want to pass a tax reform bill under “reconcilation” to bypass a Democratic filibuster in the Senate the lefislation can’t increase the deficit outsie of the budget window. As a result, a tax bill either needs to be revenue neutral–meaning that it won’t increase the deficit–or make the tax cuts on only a temporary basis.

But some GOP Senators are more interested in producing legislation with a net tax cut, which could  mean making the cut temporary under reconciliation. Sen. Pat Toomey (R-Pa.) suggested in a Bloomberg View op-ed earlier this month that Congress could extend the budget window from the traditional 10 years to 20 or 30 years to enact longer lasting tax cuts. Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Mick Mulvaney have said they are willing to consider lengthening the budget window. And Mnunchin has said that short term tax cuts are preferable to no tax cuts at all. “Permanent is better than temporary and temporary is better than nothing,” he said at a hearingon Wednesday.

Republicans agree that they want to lower tax rates. But GOP tax reform put forward by House Republicans and the White House diverge on howlow to set tax rates for both individuals and businesses.

  •  07/15
Jul 142017
 

Wash. D.C. IR-2017-113

National Taxpayer Advocate Nina Olson today released her statutorily mandated mid-year report to Congress that presents a review of the 2017 Filing Season, reviews taxpayer service, identifies the priority issues the Taxpayer Advocate Service will address during the upcoming fiscal year, and contains the IRS’s responses to each of the 93 administrative recommendations the Advocate made in her 2016 Annual Report to Congress.

In her preface to the report, Ms. Olson praises the IRS for running a generally successful filing season, including reducing the incidence of identity theft, implementing new accelerated Form W-2 reporting requirements, and matching Forms W-2 against tax returns claiming refunds. But Ms. Olson says taxpayers who require assistance from the IRS are continuing to face significant challenges obtaining it. She attributes part of the problem to resource constraints, saying that IRS funding has been reduced by nearly 20 percent since fiscal year 2010, after adjusting for inflation.

While taxpayer service and enforcement activities are both essential for effective tax administration, Ms. Olson says taxpayer service requires more emphasis than they are currently receiving. She points out that more than 60 percent of the IRS budget is allocated to enforcement activitities while only about 4 percent is allocated for taxpayer outreach and education. The report elaborates on taxpayer service limitations, particularly involving outreach and education. Ms. Olson recommends that the IRS expand its outreach and education activities and improve its telephone service and that Congress provide the IRS with sufficient funding to do so.

The report says the IRS delivered a generally successful filing season in 2017. The IRS processed nearly 130 million returns, about 90 percent of which were filed electronically. Seventy five percent of the returns resulted in refunds, and the average refund amount was $2,783. The IRS successfully implemented several provisions of the Protecting Americans from Tax Hikes Act of 2015, which directed the IRS to delay paying refunds until February 15 to taxpayers claiming either the Earned Income Credit or the Additional Child Tax Credit and required the IRS to deactivate Individual Taxpayer Identification Numbers based on age of issuance and non-use.

  •  07/14
Jul 112017
 

Arizona, U.S.A. The Arizona Republic

So you have a house to rent—or maybe just a room, in the sharing economy. Or perhaps you’d like to pick up passengers in your car working for Uber or Lyft. Pursuing these types of business activities can be great sources of additional income. But there are drawbacks too, including those involving taxes for the shared economy. There are several trickly tax rules to beware, especially if you want to lease your home or part of it: A guide prepared for Airbrib landlords by accounting firm Ernst and Yound runs 28 pages. yet plenty of the more than 2.5 million people now estimated to be part of the “shared economy” aren’t familiar with the rules, especially when they involve renting out part of a home.

“Many individuals might take on these new jobs completely unaware (of the tax obligations), ” said Nina Olson, the National taxpayer Advocate, in Congressional Testimony last year. The rules can be more confusing for people such as part time, secondary sources of income, she said. In a poll conducted by the National Association of the Self-Employed, roughly one-third of survey participants didn’t realize they might need to file quarterly estimated payments, and roughly one third didn’t know what types of tax records to maintain. Yet more people are engaging in the sharing economy. In one recent example, Airbrib said the nearly 4,700 Phoenix area residents who opened their homes to Spring Training guests thies eyar and used the company’s services earned $2350 on average over the six week exhibition baseball season.

The money you earn from the sharing economy pursuits typically is taxable and must be reported, even if you’re running things as a part time or sideline business. Income also is taxable, even if you collect the proceeds in cash and don’t receive any Form 1099’s. One exception involves income from renting your personal residence for fewer than 15 days each year–that money isn’t taxable. While the income usually is taxable, you similarly may qulaify for various deductions to lower the tax bite. The list of deductible expenses can include mortgage interest, property taxes, utilities, repairs, insurance and advertising.

 

 

  •  07/11
Jul 092017
 

Wash. D.C. msn.com

The new hot thing in tax avoidance has a boring old name: insurance dedicated funds. Introduced in the 2000s, IDFs have become so mainstream that banks such as JPMorgan Chase and Co. and Goldman Sachs Group Co. are offering them. Hedge funds like Paulson & Co. and Israel Englander’s Millennium Partner’s LP have been managing them for years. For investors, the products provide a legal way to avoid taxes. For investment firms, the premiums are “sticky”–they make for stable, long term sources of capital that act as a bulwark agasint client redemptions at a time when clients just puled $75.6 billion from hedge funds in the five quarters through March, according to Hedge Fund Research.

Here’s howit works: The client buys a private placement life insurance policy. The insurance company invests in alternative assets such as hedge funds. Profits, if any would be ordinarialy taxed as capital gains, but because it involves an insurance policy, which must abide by certain restrictions, the money can grow tax free. Beneficiaries get their money when the insured person dies. Many IDFs are life insurance policies, but they alsocome in the form of annuities, which have different tax implications. There’s no official accounting of how much money has been invested, but according to Aaron Hodari, who keeps tabs for Birmingham, Michigan based Schechter Wealth, it’s at least $15 billion, triple what it was a decade ago.

Tax status makes a clear difference. If a 45 year old, non smoking man were to contribute $2.5 million to an IDF for four years, the investment would be worth $113 million within 40 years with a 6.5% internal rate of return, according to a presentation by wealth planning law firm Giordani, Swanger, Ripp & Jetel. The account value would be $48.8 million if the investor paid taxes, the document shows. The rising use of an insurance policy among the wealthy widens the gap between the rich and pool, said Gabriel Zucman, an economics Professor at the University of California at Berkley.

  •  07/09
Jul 082017
 

Wash. D.C. msn.com

The American Health Care Act, AKA, Trumpcare, affects much more than just health insurance. Trumpcare would repeal many provisions of Obamacare that relate to insurance coverage, but it would also substantially change the amount of revenue the federal government collects. In other words, it’s not just health insurance reform, it’s tax reform, too.

The COngressional Budget Office estimated that if the version of Trumpcare passed by the U.S. House of Representatives became law, it would reduce revenue by $992 billion. In other words, Trumpcare is effectively a $1 trillion tax cut. The big questions are: Whose taxes are being cut, and what kinds of tax reform are being ushered in by this healthcare bill ?  Trump’s plan would cut taxes largely by repealing many of the taxes put into place by Obamacare to fund the original health insurance law, including individual mandate taxes:Obamacare imposes a tax penalty on Americans who donot have qualifying health insurance coverage.The penalty amount is the greater of 2.5% of household income or $695 per adult and $374.50 per child without coverage, up to a maximum of $2,085.

Employer mandate taxes: Obamacare also contains an employer mandate that imposes taxes up to $3,390 per full time worker if larger employers fail to provide affordable comprehensive insurance coverage. Enforcement of the employer mandate has already been delayed. Tax increases on HSA’s and FSA’s: Obamacare increased the penalty on HSA and FSA withdrawals that are spent on anything other than qualifying medical care. Obamacare also put a limit on the amount of pre-tax money taxpayers could put into a flexible spending account.

By 2022, when all the changes proposed by Trump’s plan would become fully effective, households in the lowest income tax brackets would receive a tax cut of around $150 of their average after tax income. Families with incomes in the top 1% with household incomes of $3.9 million or greater, would save an average of $207,000 boosting their after tax incomes by 2.6%.

 

  •  07/08
Jul 052017
 

Wash. D.C. msn.com

The break from dogma by a party that has long reviled health tax boosts–and most things achieved by Obama–underscores Senate Majority Leader MItch McConnell’s feverish effort to yank one of his and President Donald Trump’s foremost prioritites from the brinkof defeat. The change, proposed by Sen. Bob Corker, R-Tenn., would give a more populist flavor to the bill. The nonpartisan Congressional Budget Office says that as the legislationisnow written, it would boost out of pocket costs for many poor consumers and produce 22 million unisured people while cutting around $700 billion in taxes over a decade–largely for richer people and the health care industry.

“You’re increasing the burden on lower income citizens and obviously alleviating the burden on the wealthy. That is not an equation that works.” COrker said. He said he was “very confident” that leaders would address the issue in the updated bill. Top Republicans also considered an amendment pushed by conservatives to let insurers offer plans with low premiums and scant benefits. To do so, a company would also have to sell a policy that abides by the consumer friendly coverage requirements in Obama’s 2010 statute, which the GOP is struggling to repeal. Both proposals were encountering internal Republican opposition, and it was uncertain either would survive. But the effort underscored how McConnell, R-Ky., needed to mollify both wings of his divided party to rescue his helath care legislation which he wrote secretly but has floundered.

Under Corker’s proposal, the bill would retain Obama’s 3.8 percent health tax increase on investment income for married couples making more than $250,000 a year and individuals making more than $125,000. Keeping that increase would save $172 billion over 10 years, and moderates want ot use that health tax money to make coverage more affordable for pooper consumers. “If it takes something like that to get our members on board to move this process forward, I think we have to consider that,” said No. 3 Senate GOP leader John Thune, of South Dakota.

  •  07/05
Jul 022017
 

New York. The Wall Street Journal

The Internal Revenue Service is getting better at finding secret stashes of overseas cash from people hiding money and tax evaders are receiving harsher penalties than ever, including prison. True tax evaders have for years intentionally hidden money offshore from Uncle Sam, often in multiple layers of entities such as trusts and foundations. Since a crackdown began in 2008, more than 55,800 people have paid more than $9.9 billion to come clean on such accounts. Others haven’t stepped forward, hoping to escape notice. Now the dragnet is tightening further.

The IRS is currently mining extensive data provided by banks in Switzerland and elsewhere to find scofflaws and their enablers. In a little noticed comment at a conference in late May, an IRS official said the agency has taken action on 100 potential criminal cases and another 14,000 potential civil cases as a result of this analysis. Justice Department staffers also are combing through data from the “Panama Papers” looking for U.S. tax dodgers, according to a person familiar with the matter. These documents which were published last year, contain account details for hundreds of thousands of offshore accounts.

Meanwhile courts this year have handed down prison sentences to at least seven people who were hiding money in offshore accounts, including a retired professor, a plastic surgeon involved in a divorce and five others. These sentences reverse a past trend in which courts imposed stiff financial penalties in offshore cases but little or no time in prison. One reason is that it’s hard for defendants to claim ignorance of the law, given publicity around the crackdown. If you have offshore accounts with tax glitches caused by hiding money, don’t panic, take action and contact a tax professional for help.

This group of Americans is large, as it includes many of the more than 7 million Americans currently living outside the U.S. Often these people were not hiding money abroad and paying taxes where they reside, but they haven’t complied with complex U.S. tax rules on foreign accounts. Many were unaware that the U.S., unlike most nations, taxes nonresidents on world wide income and assets.

  •  07/02