Friday, November 3, 2017

New tax proposal saves marriages!

The tax revamping proposed by the Trump Administration certainly grabbed headlines. However, many who have been asking for meaningful tax simplification might now be sorry that they asked. These proposals will be a good example of “be careful what you ask for”, as many favorite deductions and exclusions are slated to disappear. Who knows how this will ultimately finish out, as the legislative process works through hammering out what ultimately will be a final version. However, a prudent taxpayer can do a couple things to help ease any anticipated pain.

Example: If the mortgage interest deduction might be limited to only interest on $500k in debt, you probably don’t want to start house hunting right now for that million dollar home unless you plan on putting down at least 50%. The deduction for state income taxes and medical expenses is proposed to go away. If you have discretion over when to pay these, you might consider paying them in 2017 before a repeal takes effect. But maybe not, depending on your individual tax situation. These things may do you no good in 2017 either.

 Another example of things you can do to change your tax profile is not getting divorced. Right now the tax code actually encourages the opposite, as there is still a marriage penalty built into the rate structure, and often times two single filers will pay less tax than a married couple with the same incomes. In addition, Alimony payments are fully deductible against gross income, making it easier to support a former spouse. But that could be changing. With a contraction of the rate brackets the marriage penalty could be reduced for many. And that payment to the Ex? It’s proposed to be nondeductible, making it much more expensive for people getting divorced in the future.

There are too many provisions that are on the cutting board to go over them all here, but let it suffice to say that a projection of your 2017 tax situation before it is cast in stone is an important starting point. This will enable you to make some decisions on how or if to respond to pending law changes.


Thursday, September 14, 2017

a new scam

Ok, so this isn't a tax topic, but it did occur in our CPA firm so I'm gonna say it qualifies. It seems that there is just no limit to what thieves will do in this new cyber age. 

This episode happened to our office manager last week. She answered her cell phone and was greeted by a man who knew her name. He told her that he had her daughter and that he was going to kill her if she did not do exactly as he said. He said he was going to start by cutting off her ear. While he his telling her this over the phone, a woman is in the background screaming bloody murder as if she is being tortured and yelling “ Mom Please do what he says!” . Lots of emotion and yelling on the phone.  My office manager panicked and hung up. She called the police and had them on the line when the man called back. The girl in the background is moaning and screaming, he is yelling he will kill her if he doesn’t get what he wants, and the cops are telling her it’s a scam, but given that 1) she doesn’t know the whereabouts of her kids and grandkids at that moment, and 2) the guy used her name, and 3) there is someone screaming as if she really is being murdered, it was all very stressful.


Ultimately she hung up and was able to reach out to confirm that all her family was safe and that it was a scam, but it left her an emotional wreck.


Given that the Equifax breach may have compromised some or all of our personal names and contact data, we should be aware that there are a lot of ways scammers will use that info. We should be very suspicious of contacts from the phone or internet. If you get a call like that one, just hang up and call the cops. Even better, use your caller ID religiously. If you don't recognize the number, don't answer the phone, and let them leave you a message. Most (but not all) of the junk calls will disappear. 


Monday, March 13, 2017

late night musings

We are in the heat of tax season, and while I should be focusing on the Piles o’ Files on my desk and office floor, I’m done for the day and need a distraction. Enter Bill Gates.

Bill Gates (of Microsoft fame) recently sparked a discussion when he suggested that robots soon will be replacing many more workers, and as a result those unemployed workers would no longer be tax paying members of society. His suggestion is to tax robots to replace the revenue loss to the government.

Albert Einstein once quipped to his Accountant that the hardest thing in the world to understand is the Income Tax. Let’s take as a granted that Mr. Gates is a very intelligent man. However, I suspect he may fall into the same category as Albert Einstein in this matter.

If I as a business buy a robot to replace a worker, the two desired outcomes are 1) I pay some company to sell me the robot, and 2) I lay off workers that will be displaced and my business will save money. In the first action, I have bought a product that was built by another business and sold to me at a profit (for them). That business employs robot builders and makes a profit, paying taxes on their profits and paying wages to the robot builders. No different than any other manufacturing job.

In the second action, I lay off workers and reap savings to the company in the amount of wages I no longer have to pay. However, those savings become profit to my company. That profit is taxed to the company, so where is the loss in tax revenue? There is none. Granted it has shifted from the worker to the company, but if tax rates were equal there would be no net change. This is an argument for equal tax rates between businesses and individuals.

There is some leakage due to payroll taxes that are assessed on employers and employees based on wages paid, but these taxes could be abolished and provide incentive for employers to hire more workers as the cost declines.

The social implications are more visible. What do you tell the unemployed worker? File for unemployment? Perhaps he/she could become a robot builder. This is the real question and it isn’t just theory. What happens to cab drivers when Uber and Lyft take over? And then to those drivers when we have driverless cars and trams? What happens to UPS drivers and their trucks when drones start dropping boxes on your porch?

These kinds of change are not new. “Creative Destruction” wherein some new technology develops that makes life better, but destroys older methods and industries in the process is the reason we no longer ride horses to work, or have to bury ice in the ground during winter to use in the summer. It should be embraced, not impeded.