Monday, March 29, 2010

Do it for you, not for the country.

Its springtime and two annual phenomena will be reoccurring like clockwork as they have for years: 1) Trout season opens soon in the Eastern Sierras (yaay!) and, 2) lots of people are now flush with cash from tax refund checks.

The IRS has said that the average tax refund this year has been around $3,000, and that means all those folks who have been lending money to Uncle Sam at zero percent interest all year finally get their money back. The big question is, what will they do with the money?

In the past, consumers were hammered with waves of advertising offering to sell cars, boats, and electronics of all kinds on credit pending the receipt of their income tax refund for a down payment. Those voices have quieted down now (probably gone out of business) but all that extended spending did help fuel our consumer driven economy. Was it any wonder that at the same time we were being exhorted to buy stuff on easy credit, the US was racking up one of the worst per capita savings rates in the world? Without savings, how is a struggling household to weather an unexpected decline in income?

So, what’s the best thing to do with your tax refund? This is my advice: Do what’s best for you, and let someone else stimulate the economy. Pay off high interest credit card and auto debt. Sock away cash for an emergency reserve. Invest in your own retirement account. Pay off your mortgage(s). Ok that last one might be a bit tough, but you get the point. Its not real sexy advice, and you might not have that cool toy hauler and quads to take to the desert on the weekend, but you’ll breathe a little easier if the economy doesn’t pick up for a few years.

Friday, March 19, 2010

Dylan was right!

I’ve refrained from blogging for awhile as most of my spare time seems to have disappeared due to workload. Don’t get me wrong – I’m happy to have the work, its just that nowadays when I get a free moment I usually end up pondering a rising trout on a particular eastern sierra stream rather than thinking of current tax issues.

However there are some really important happenings going on that you should be aware of. Notably, the Health Care legislation being kicked about in Washington has some important changes in taxation included in it. For the first time interest, dividends, royalties, rents, annuities AND CAPITAL GAINS would all be hit with a 3.8% tax surcharge. If your income is over $200k ($250k married filing joint) then under the current proposal you will be hit with this new change in the tax law. Stay tuned for more updates as the political drama plays out.

There will be some changes definitely hitting sooner that may affect you. A new law just signed by the President will provide for a tax credit for employers who hire new employees between 2/3/2010 and 12/31/2010 who were previously unemployed for 60 days or more. The credit is equal to the employer’s 6.2% social security tax on wages. Further, for each new hire retained for at least a year employers will be eligible for up to $1000 in additional tax credits in 2011.

If you have money in a foreign bank or own 10% or more of a foreign business, the same new law discussed above now requires that these overseas investments be subject to US withholding (How are they going to enforce that???). Congress is also looking at requiring disclosure of foreign bank accounts on your tax return in 2011 or risk up to $50,000 in penalties.

Some good, some bad, but as Bob Dylan said…the times, they are a changing….