Posts filed under 'DEATH & TAXES'
Right now, during tax season, is a time when investors traditionally reflect on what they can do to manage their finances better and reduce their tax exposure. Like you, we are very mindful of the impact of taxes on your net returns and total accumulated assets. It’s especially true now — with changing tax legislation in the works. It’s more critical than ever to adopt a strategy that may help lessen your tax burden in the coming year.
To assist you as you approach tax planning, our thought leaders have prepared a special Viewpoints commentary that focuses on what you need to be asking yourself, your tax advisor, and us at Fidelity to help you keep more of what you’ve earned.
You can find these insights at Fidelity.com/taxviews.
March 13th, 2010
For every Sunbelt refugee who has tried to leave high tax bills behind in the cold Northeast, Julian Robertson scored a victory this week. By proving that he was outside New York City for half the days in the year 2000, the former hedge-fund titan avoided $27 million in city taxes, thanks to a ruling by New York’s tax court.
No thanks are due the New York State Department of Taxation and Finance, which had ruled he was a resident and therefore liable for the multimillion-dollar tab. In the upside-down world of tax law, where citizens are guilty until they can prove their whereabouts, it’s a rare taxpayer victory.
New York Yankee captain Derek Jeter is routinely photographed with beautiful women in sunny Florida when he’s not visiting the 28 major league ballparks located outside the city limits. But a couple of years ago the all-star shortstop couldn’t convince the tax police that he’s not an everyday player in the Big Apple. Come to think of it, there would seem to be very few people in the city who would have more evidence than Mr. Jeter of days spent elsewhere. So how did Mr. Robertson hit his home run?
A meticulous assistant kept a computer calendar so precisely that she even counted as a day in New York one evening when Mr. Robertson crossed the George Washington Bridge at 11:45 p.m. and entered the city.
Mrs. Robertson helped out by testifying that she can’t stand to have Mr. Robertson around when she’s packing for a trip and therefore would have banished him from Manhattan on the day before their departure on an overseas trip.
That a man who has everything would be willing to subject himself to such a trial—and to put himself under surveillance by his office staff—tells us something about the tax burdens that have become a sad fact of life in so much of America. Whether for baseball players or bond traders, New York City and surrounding locales should spend more effort encouraging people and businesses to locate here and fewer resources punishing those who do.
Julian Robertson’s $27 Million Tax Victory in New York – Editorial, WSJ
November 14th, 2009
The Wall Street Journal reports, House Health Bill Slaps 5.4% Tax on Top Earners. The Tax Foundation calculates that adding this surcharge to existing taxes would raise the top tax rate to over 50 percent in 39 states. Click on the link to find out where your state stands in their ranking.
I believe the relevant marginal tax rate is even higher than the Tax Foundation suggests. Their calculations seem to ignore sales taxes, which are significant in many states. Because income earned will eventually be spent and thus subject to sales taxes, sales tax rates need to be combined with income tax rates to find the true tax wedge that distorts the consumption-leisure decision. Once sales taxes are included, a top earner in a typical state would face a marginal tax rate of about 55 percent.
Top Tax Rate May Soon Exceed 50 percent – Greg Mankiw’s Blog
July 17th, 2009
Only five months after Inauguration Day, the focus of Washington’s economic and domestic policy is already shifting. This reflects the emergence of much larger budget deficits than anyone expected. Indeed, federal deficits may average a stunning $1 trillion annually over the next 10 years. This worsened outlook is stirring unease on Main Street and beginning to reorder priorities for President Barack Obama and the Democratic congressional leadership. By 2010, reducing the deficit will become their primary focus.
Why has the deficit outlook changed? Two main reasons: The burst of spending in recent years and the growing likelihood of a weak economic recovery. The latter would mean considerably lower federal revenues, the compiling of more interest on our growing debt, and thus higher deficits. Yes, the President’s Council of Economic Advisors is still forecasting a traditional cyclical recovery — i.e., real growth of 3.2% next year and 4% in 2011. But the latest data suggests that we’re on a much slower path. Probably along the lines of the most recent Goldman Sachs and International Monetary Fund forecasts, whose growth rates average about 2% for 2010-2011.
A speedy recovery is highly unlikely given the financial condition of American households, whose spending represents 70% of GDP. Household net worth has fallen more than 20% since its mid-2007 peak. This drop began just when household debt reached 130% of income, a modern record. This lethal combination has forced households to lower their spending to reduce their debt. So far, however, they have just begun to pay it down. This implies subdued spending and weak national growth for some time.
In a March 27 forecast, Goldman Sachs estimated average annual deficits of $940 billion through 2019. If this proves true, deficits would remain above 4% of GDP through the next decade and the national debt would reach a whopping 83% of GDP, a level not seen since World War II. The public is restive over this threat: In a recent Wall Street Journal/NBC News poll, Americans were asked which economic issue facing the country concerned them most. Respondents chose deficit reduction over health care by a ratio of 2 to 1.
Mr. Obama and his economic advisers understand this deficit outlook and undoubtedly view it as unsustainable. They also understand that increasing deficit concerns complicate their efforts toward universal health-insurance legislation, which is clearly a top priority of this administration. According to the Congressional Budget Office, which released its latest forecast June 16, such legislation would mandate more than $1 trillion of new federal spending over 10 years. Winning support for that much new spending — in the face of record deficits — will be a challenge.
This explains why the president is stressing the importance of a deficit-neutral bill. In other words, that any new spending be fully offset by a combination of Medicare and Medicaid cuts and new tax revenues. Key Senate leaders have echoed this requirement. Fully financed legislation probably will emerge after a lengthy struggle.
The poor budget outlook may impel the administration to follow up health-care legislation with an effort to fix Social Security. The shortfall in Social Security’s trust funds — which adds to the long-term deficit — is much smaller than the companion problem in Medicare funding. Public anxiety over deficits may make this fix possible now even though it has been elusive for years. If this could be done, confidence in Washington’s capacity to address its debt challenge would rise.
But even with a Social Security fix the medium-term deficit outlook will be poor. Sometime soon, perhaps in 2010, Main Street and financial markets will exert irresistible pressure to reduce the deficit.
The problem is the deficit’s sheer size, which goes way beyond potential savings from cuts in discretionary spending or defense. It’s entirely possible that Medicare and Social Security will already have been addressed, and thus taken off the table. In short we’ll have to raise taxes.
We’ll Need to Raise Taxes Soon – Roger Altman, Wall Street Journal
June 30th, 2009
From Jesse’s Cafe Americain: http://jessescrossroadscafe.blogspot.com/
William Seidman on culprits of the financial crisis
By George White
November 10, 2008 at 4:50 PM
L. William Seidman, former chairman of the FDIC and the Resolution Trust Corp., was the lunch speaker at the Securities Industry and Financial Markets Association’s Summit on the Troubled Asset Relief Program Monday afternoon. As chair of the FDIC during the last financial crisis, Seidman started off by reassuring the audience that the crisis would pass, but he quickly focused on the seriousness of the situation.
“These things do go by,” he said, “but that’s not to take away from the fact that this is the worst financial crisis since the Great Depression. In one sense it’s worse than the Great Depression, since it’s far more complicated for governments to handle.” (Hey didn’t Greenspan call a bottom last week? LOL – Jesse)
Seidman then went on to list the main reasons (in no particular order) for the crisis:
1. The Securities and Exchange Commission for loosening capital requirements
2. Fannie Mae for entering into subprime lending
3. Rating agencies for rating paper with which they had no experience
4. Robert Rubin and Alan Greenspan, who went to bat to prevent the commodities exchange from regulating derivatives (add Phil Gramm and wife here)
5. The Federal Reserve for increasing the money in the system and refusing to regulate mortgage brokers
6. Securitization and himself
“The nuclear weapon of this situation has been securitization. This was invented by myself and the RTC, so I add my name to this list as well,” Seidman said. “The exception is that we kept a piece of it ourselves back then; that part was lost when others started doing it.”
Bill is being far too humble and self-effacing by naming himself for merely developing the concept of securitization as part of his work at the Resolution Trust Corporation during the S&L crisis. Taking the blame for what followed at the turn of the century is like blaming the inventor of television for CNBC. Wall Street is capable of perverting almost anything into a vehicle for financial chicanery and fraud.
May 14th, 2009
Need a rescue from the penalties of unpaid taxes?
If your business is sinking into debt from accruing penalties of unpaid State taxes, let New Jersey Tax Amnesty come to your rescue. Now through June 15, you can wipe the slate clean and settle your State tax debt with no penalties, and with less interest.
It’s a program that has the potential to save your business thousands of dollars in 2009.
But if you want to take advantage of this offer, you’ll have to act fast, because when the Tax Amnesty period ends, additional fees, interest and collection costs will be imposed, and the New Jersey Division of Taxation will pursue these outstanding debts aggressively, as authorized by law.
Getting started
To learn more about New Jersey Tax Amnesty, as well as finding all the necessary paperwork to get started, visit the New Jersey Tax Amnesty Web site, TaxAmnesty.nj.gov. You can also get specific questions answered at our toll-free Tax Amnesty Hotline, 800-781-8407. Hotline hours of operation are 8:00 AM to 8:00 PM, Monday through Friday, and 8:00 AM to 4:00 PM on Saturdays.
Virtually everyone throughout the country is impacted by the current tough economic environment. More and more, businesses and individuals are struggling to stay afloat with the accrual of high penalties and interest because of unpaid State taxes. That is one of the main reasons for this limited Tax Amnesty—to bring relief to those experiencing economic anxiety and uncertainty.
Below are the answers to some New Jersey Tax Amnesty Frequently Asked Questions:
What tax periods are included?
Tax liabilities incurred for tax returns due on or after January 1, 2002 and prior to February 1, 2009, are eligible for Amnesty.
If I participate in Tax Amnesty, do I become an audit target or do my chances for audit increase?
No. Participation in Tax Amnesty neither increases nor decreases your chances for audit selection.
How do I obtain Amnesty?
You must read and execute a Payment/Waiver Statement and file any outstanding tax return(s) and pay the Amnesty Amount Due (all taxes and required interest) on or before June 15, 2009. The Payment/Waiver Statement is your agreement that you owe the tax and acknowledges understanding that you waive your right to appeal.
What taxes are not eligible for Amnesty?
Any tax not administered and collected by the Division of Taxation is not eligible for Amnesty. Some examples of taxes not eligible for Amnesty are:
- SOIL (Set-Off of Individual Liability) debts from agencies other than the Division of Taxation
- Local Property Taxes
- Fees imposed by the Secretary of State’s Office, such as the annual fee for corporations, and reinstatement fees
- Payroll taxes owed to the Department of Labor [Note: Although employers report Unemployment Insurance (UI), Disability Insurance (DI), Healthcare Subsidy (HC) and Workforce Development (WF) payroll taxes on the Employer’s Quarterly Report (NJ-927), these payroll taxes are owed to the Department of Labor and are not eligible for NJ Tax Amnesty. The only employer-withheld payroll tax for which liabilities are Amnesty-eligible is the New Jersey Gross Income Tax (reported on line 7 of NJ-927).]
- Federal Liabilities
- Motor Carriers Road Use Taxes
- Realty Transfer Fee
Our mailing address is:
New Jersey Division of Taxation
50 Barrack Street
Trenton, New Jersey 08695
May 8th, 2009
One thing is certain: It was a very bad year for investors. And while this will probably come as cold comfort for most people, your investment losses will serve up certain tax benefits. It’s worth spending some time now, before the end of the year, to be sure you are maximizing any opportunities to trim your tax bill.
The stock market is a risky place but there is a lot of opportunity out there. Risk is prevelent but my general view is that to all those of who were behind in investing and building their IRAs, this could be a 2nd chance! Everyone is down right now, research and then consider buying. Think about it, the federal government has given huge Dow 30 firms billions and billions of dollars. They are not going to let them fail. I don’t pretend to know what is going to happen with all of the firms-but the Feds can’t afford for these companies to fail. So there will be greater insight but also hopefully stronger more agressive companies will prevail.
Keep in mind that taxpayers can use their realized investment losses to offset an equal amount of gains (if you’re lucky enough to have any, of course). But if you don’t have any investment gains, or your losses exceed your gains, those losses can be used to offset up to $3,000 of ordinary income, or $1,500 for married individuals filing separately. Remaining losses can be carried forward to future years — indefinitely.
That means you should assess the damage within your taxable portfolios for investments you want to sell, and get rid of them before the end of the year. Of course, you do not want to sell investments haphazardly simply to generate a loss for tax purposes. Your long-term strategy should always take precedence.
‘If you do sell a security that you still like and expect to buy back later, be aware of ”wash sale” rules, which forbid you from reaping a tax benefit if you buy the same investment within 30 days of selling it at a loss. Any losses logged won’t count.
Here are several other actions to consider, given depressed asset values:
CHARITY Investors often donate appreciated stock to charity so they can circumvent capital gains taxes. This year, investors might consider selling slumping stocks first, realizing the losses, and giving the proceeds to charity, said Susan Hirshman, a wealth adviser at JPMorgan. Or, donate stock that is still trading above its purchase price.
CONVERT TO A ROTH This is an ideal time for individuals to convert their traditional individual retirement accounts to a Roth I.R.A. You must pay income taxes on the entire amount converted, so lower asset values work to your advantage. For now, individuals will face income limits for converting: single and married joint filers must have adjusted gross income of $100,000 or less. But those income limits expire in 2010.
GIFTS You can give any number of people annual gifts of up to $12,000, free of gift tax, which is an effective way to reduce the value of your taxable estate. It works particularly well now because you can give away more shares when they are worth less, and the shares can recoup their value outside of your estate. Likewise, if you want to give someone more than $12,000, you will also be able to give more shares away. And since the value has declined, you will eat into less of your $1 million lifetime gift tax exemption, which applies to gifts over the $12,000 threshold, said Maureen McGetrick, a partner with BDO Seidman.
Beyond opportunities tied to the market’s swoon, some taxpayers might need to rethink their typical tax-savings strategies. Normally, it makes sense to accelerate certain deductions, like paying a portion of next year’s property taxes early, and push as much income, like a bonus, into the next year as possible. But if you expect to land in a higher tax bracket in 2009, you might do the reverse: take as much income as possible now and defer certain deductions.
Some wealthier taxpayers might prefer to take this reverse approach because it’s unclear if and when their taxes will rise.
”The bottom line is that we don’t know where tax rates are necessarily going, but what we do know that the political and economic outlook is ripe for tax increases,” said Ms. Hirshman of JPMorgan. ”And most importantly, we do know our tax rates are at historical lows.”
On the other hand, if you are a victim of the flagging economy and you expect your income to drop significantly next year — or you expect to lose your job — you might accelerate deductions and offset as much of this year’s income as you can, said Mark Luscombe, a principal analyst at CCH.
Of course, all strategies need to be considered in light of the alternative minimum tax, a parallel tax system set up in 1969 to ensure that the wealthiest taxpayers paid their fair share of taxes. People who expect to be caught by the A.M.T. should calculate their taxes twice: once under the regular system and again under the A.M.T., which has its own set of complex rules and excludes certain deductions like property taxes. For joint filers, the amount of income exempt from A.M.T. increases to $69,950 this year from $66,250 in 2007, and, for singles, to $46,200 from $44,350.
Several other tax breaks were either extended or added this year by Congress, including these:
PROPERTY DEDUCTION This new, additional standard deduction for property taxes (up to $500 for single filers and $1,000 for joint return filers) can be claimed by people who take the standard deduction and pay property taxes.
It might end up being a better deal for people who normally itemize their deductions. And, ”if you are in this category, consider turning the usual year-end strategy on its head: Shift as many deductible expenses, such as charitable contributions, from 2008 to 2009,” said Bob Scharin, senior tax analyst from the tax and accounting business of Thomson Reuters. ”That way, you can claim the bigger standard deduction in 2008 and, by shifting what would otherwise be 2008 expenditures into 2009, put yourself in a better position to exceed the standard deduction amount next year.”
SALES TAX Individuals who itemize their deductions have the choice of deducting state and local sales taxes instead of income taxes. This works well for anyone who has made an unusually large purchase or for those in states without income taxes, like Florida.
I.R.A. DONATIONS Individuals who are at least 70 1/2 can use tax-free distributions up to $100,000 from their I.R.A.’s for contributions to qualified charities in 2008 and 2009. Such distributions do not count as income and cannot be deducted as charitable donations.
HOME BUYER CREDIT First-time home buyers can take what amounts to an interest-free loan from the government in the form of a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. You must pay back the loan over 15 years, and income limits apply.
EDUCATION A deduction for higher education expenses was extended through 2009 and applies to all taxpayers, including those who do not itemize their deductions. Single filers with adjusted gross incomes under $65,000 (or $130,000 for joint filers) can deduct up to $4,000 for education expenses. Taxpayers with income of $65,000 to $80,000 (or $130,000 to $160,000 for joint filers) can claim a reduced deduction of up to $2,000.
KIDDIE TAX Beginning this year, children under age 19 (up from age 18) and full-time students under age 24 with investment income in excess of $1,800 will be subject to their parents’ tax rate.
Source for this article: New York Times
April 21st, 2009
