Budget Changes and Tax Reform

May 5, 2011 § Leave a comment

After watching the discussion on the President’s proposed budget on CNBC, I realized what a delicate balance there is between the country’s financial needs and the tax revenue that funds them.  It seems everyone sees that there is a problem of unlimited needs and very limited funds, but when it comes to solutions it looks like the only way to work through this is for everyone to put their pride aside and realize there really is no one solution to this problem.  Its going to take a lot of give and take between both parties and all opinions.

As far as the budget goes, I would like to see more money being allocated to sections like education and job training versus the money that is being spent on income security like housing assistance and food and nutrition assistance.  I understand that we are facing hard economic times and that many people do need assistance.  But I also feel that by putting more funding into activities that enable people to provide for themselves instead of causing them to rely on government handouts, the government would be doing everyone a favor.  While sometimes everyone needs a little help to get back on their feet, and with the high rate of unemployment many people are still not financially stable yet, I have a hard time seeing the President spending nearly 15% of the budget on income assistance type programs while putting only about 3% towards programs that help give people the skills they need to support themselves.  I’m not saying that the solution is simple, but I do feel that something needs to be reconsidered.

Another change to the proposed budget I would like to see made would be to expand upon the reduction of administrative overhead in government, including a freeze on upper-level government position salaries and a combining of positions that have been unnecessarily divided and that would be more cost-effective as one position.

As far as tax reform, I would like to see a broader tax base.  Although no one really wants this, it seems an increase in who is being taxed as well as an increase in tax rate seem to be necessary if the country is ever to get out of the deficit it is in.  Increasing the tax on the wealthy is not going to fix the whole problem.  While I do feel those with a higher income should be paying a higher amount of tax, the percentages should not be spread out so far that the wealthy is bearing the full responsibility for the tax burden.

I would also increase gift and estate tax instead of raising the amount that can be exempt from taxation.  I think taxing more of these items would actually help a greater number of people by perhaps decreasing the amount of tax needed from regular income, such as wages.


Summary of Posts

May 4, 2011 § Leave a comment

1/28/2011  “State of the Union Address”  Discussed the importance of Obama’s emphasis of togetherness and both political parties working together to accomplish health care reform and other innovative movements for America.

2/22/2011  “Solution to the Health Care Debate”  Looked at the possibility of treating health care benefits as taxable income and the benefits of adopting such a policy.

3/10/2011  “New Tax Break”  Discussed new tax rules that involve gift taxes and increasing the amount allowed for gift tax exemptions.

3/10/2011  “Will the Housing Market Ever Bounce Back?”  While spending seemed to be on the rise, the housing prices were still declining and for many people it seemed that any break in housing was coming too late.

4/6/2011  “End of  Tax Season”  I touched upon some last-minute tax tips offered by one article including certain audit triggers that people should be aware of as well as charitable contribution deductions that often go unused.

4/6/2011  “The Art of Deduction”  Using the tax code to get the most benefit out of tax deductions and exemptions.

4/6/2011   “Tax Reform”  Five problems that should be fixed by new tax reform, including lack of health care premium deductions and taxation of Social Security benefits.

4/28/2011  “Talking to the IRS”  Importance of communicating with the IRS over issues and not ignoring their attempts to contact you as well as tips on what to do once you are face to face with them.

Talking To The IRS

April 28, 2011 § Leave a comment

I recently read an article on the Wall Street Journal’s website that gave pointers on what to say (and what not to say) when dealing with the IRS.  Whether it be because you are being audited, or because you need to set up some type of payment plan for your taxes, having to deal with the IRS can prove to be nerve-wracking.  This article gave practical advice to make dealing with the IRS a little less stressful.  Rule number 1?  Never ignore the IRS.  If their notices are ignored enough, you may end up with a lien on your house or bank accounts.  Which leads me to rule number 2: communicate with the IRS, but don’t over-communicate.  Tell them what they need to know but don’t give away information that isn’t necessary.  Other important pieces of information that may prove helpful?  Always have documentation to back up your tax information, whether it be cancelled checks or receipts, and make sure you ask questions.  Often times, people will find that, if they ask, the IRS will make it clear what their options are and what they need to do. 

I found this article interesting because unlike some of the other articles that come out around tax season, this one actually gave suggestions on what to do if you DO end up being audited or needing to talk with the IRS.  Many other articles simply give advice on getting the best refund and looking for tax breaks when filing your return.


Tax Reform

April 6, 2011 § Leave a comment

A recent online Wall Street Journal article raised the issue of tax reform and five problems with current federal taxation that should be fixed.  These five problems included employees not being able to deduct health care premiums, renters getting no tax breaks, the alternative minimum tax, the taxation of social security benefits, and rules regarding retirement account required minimum distributions.  The author makes very good arguments as to why all of the previously mentioned issues need to be fixed.  Take for instance the  fact that many employees can not write off  self paid for health insurance unless their employer provides a cafeteria benefit plan (which many don’t), while those employees with better benefit plans enjoy tax-free employer paid for health insurance and self-employed taxpayers can write off their health insurance premiums.  The taxation of social security benefits is also a major issue.  It seems unfair that you pay social security tax when it is withheld from your paycheck as well as income tax on it when it was included in your taxable income, and then have to deal with the government taxing it again once you begin collecting it.  Triple taxation?  This article raised some very good points and I’m sure these issues will continue to be brought up until some type of reform comes about.


The Art of Deduction

April 6, 2011 § 1 Comment

A recent article on the Wall Street Journal’s website caught my eye.  It was about a CPA by the name of Doug Stives, who left his job with an accounting firm to teach tax and accounting courses full-time at a business school in New Jersey.  He then started a side consulting business, Doug Stives LLC.  By maximizing his allocated expenses to his consulting business, Stives, though making 75% less than he was at his previous employment, is now taking home almost 90% as much.  He is able travel more and is living a more enjoyable life.  He says he “uses the tax code’s many quirks as the means through which he can live a fuller life.”  What could be better than that?  The key to Stive’s strategy is the Schedule C form, which is used to report profit or loss from a business.  According to the article, ‘[o]n this form goes all of his income and expenses from his consulting work—advising clients, preparing returns, helping write textbooks and conducting continuing-education seminars that CPAs need to maintain their licenses.”  Stives gets to choose where he takes his seminars and often picks vacation spots.  By working half the time he is there (not counting travel days or weekends) he is able to deduct his entire airfare as well as a majority of travel costs as business expenses.  There were many other deductions that Stives is able to take but the most interesting part is that he does it all by the book.  He keeps accurate records, a separate credit card for business expenses, and is careful to observe IRS rules.  I found this article to be inspiring and it really peaked my interest in getting the most out of your deductions.


End of Tax Season

April 6, 2011 § Leave a comment

I recently read an article from the Wall Street Journal entitled “30 Last-Minute Tax Tips”.  It gave readers tips on everything from overlooked deductions to common errors to items that often trigger audits.  One interesting deduction that is often overlooked are charitable contributions that come straight out of ones paycheck.  Often people forget about these once tax season rolls around and because employers don’t include this number anywhere on an employee’s W-2 it often goes un-deducted.

Certain items that can trigger audits included home mortgage interest deduction in excess of $50,000, rental real estate losses, and the home buyer tax credit.  I think it was wise to include a section on audit triggers because it helps give taxpayers a heads up as to what they can expect.  The section on common errors was also helpful, advising people not to overstate their charitable deductions and to make sure not to miss out on the Making Work Pay credit that is available.  This article was very informative and will hopefully help taxpayers get the most out of their tax return.


Will the Housing Market Ever Bounce Back?

March 10, 2011 § Leave a comment

Although the economy is slowly beginning to recover, housing prices are still declining.  An article from the Wall Street Journal noted that, “Home prices fell to new lows in 11 cities in December, the latest sign that the weak housing sector remains a soft spot in the U.S. economy.”  In many areas, home prices fell 1% from November to December, which raises the question, will the housing market ever be back to normal?  One factor that seems to be having a negative effect on the housing market is the continued addition of numerous foreclosures to the market.  According to the same article, “Economists at Capital Economics estimate that for the current level of demand, there are 850,000 too many homes for sale.”  However it went on to say that many economists do believe it will recover shortly and eventually “stabilize as economic growth accelerates.” 

Unfortunately for many people, the housing crash has already taken its toll.  Some people have invested so much into houses that they can now barely sell to break even.  Even as consumer confidence is on the rise, it makes one wonder if the economy will ever truly recover.