Archive | Tax Issues

Make more than $200K? Your taxes are (probably) going up

Remember all the talk after the 2012 election about tax hikes? Well, they’re here–but you’re probably going to be affected only slightly, or not at all, if you are earning less than six figures. However, once you get above $200,000 of total income, you’re almost sure to see a hike in your tax bill this year.

The most significant increases affecting higher-income earners this year include:

–The new 3.8% Net Investment Income Tax on singles with modified adjusted gross income of more than $200,000 ($250,000 for joint filers.) As Brent Hunsberger of The Oregonian points out, this tax on investment income includes real estate income. Remember that real estate income is ordinary income, so this is a 3.8% tax on top of whatever your ordinary marginal tax rate already is. (Department of Shameless Self-Promotion–Hunsberger quotes Yours Truly in his article.)

–A Medicare Tax increase of 0.9% . You are subject to this if you have wages and/or self-employment earnings of more than $200,000; $250,000 for joint filers. Note: Because employers don’t know all of your sources of income, they cannot withhold this additional tax. You’ll be reporting it yourself on the all-new Form 8959.

–An increase in the top rate on long-term capital gains and qualifying dividends to 20%, instead of 15%. This hits people with taxable income above $400,000; $450,000 for joint filers.

–An increase in the top marginal tax rate, from 35% to 39.6%. Again, only the highest earners–people with more than $400,000 of taxable income, $450,000 for joint filers–are affected.

The biggest problem for folks who are affected by all of these increases? Maybe it’s figuring out where the few people are with whom you can commiserate. As this handy-dandy calculator from Kiplinger’s shows , people with adjusted gross income for $400,000 or more are in the top 1% of income earners nationwide.

Corporations say DOMA is a big tax hassle

I always say that everything’s about taxes. The current legal wrangling about gay marriage proves it once again.

More than 200 companies have signed onto a brief filed with the Supreme Court saying that the Defense of Marriage Act has become an administrative hassle, forces them to discriminate against different classes of married employees, and should be overturned so that same-sex couples receive federal recognition.

I’ve written previously about United States v. Windsor, which the Court is likely to hear in March. Ms Windsor was married to Thea Spyer and inherited Spyer’s property in 2009, but also was hit with a large estate tax bill that would not have been assessed if She had be a He. Companies including Apple, Nike, Starbucks, Marriott International and Walt Disney, filed in support of Ms Windsor’s case.

As Erik Eckholm wrote in The New York Times in summarizing the brief’s argument, “Treating heterosexual and same-sex married employees differently under federal law, the brief said, imposed high administrative costs as companies maintained dual systems of tax withholding and payroll. It results in extra tax burdens for both companies and employees with health plans, and can affect payments including retirement, pension and life insurance as well as having a bad effect on morale.”

How a bank error could push up your tax bill

If you get a credit card company or bank to forgive a debt, the institution is likely to send you–and the IRS–a Form 1099 at the end of the year. The amount listed on that form might be taxable income to you. (Whether or not you actually have to pay tax on the money depends on several factors, including whether you were insolvent or bankrupt when the debt was forgiven. Helping taxpayers deal with this kind of thing keeps tax pros like myself fully employed.)

Amazingly and outrageously, some banks are apparently sending out 1099s for debts that individuals no longer owe, and that the banks legally are not even allowed to forgive. As The New York Times’s Gretchen Morgenson reports, some banks may be sending out these notices to people who no longer owe a debt. The individual then gets the opportunity to explain to the IRS why a notice from a multi-billion-dollar, multinational institution is wrong.

Oh—and the banks may even be able to use these notices to take advantage of a government program giving them credit for “helping” customers who had bad loans. Just when you thought you’d heard everything about banks’ bad lending practices and bollixed-up record-keeping.

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When a candidate says what he really thinks . . . that’s news

“…who believe that they are entitled to health care, to food, to housing, to you-name-it.”

Wow. Won’t spend a lot of time on this, because it’s only been the #1 story of the week. Absolutely chilling to hear the world view of a man who believes that 47% of us are freeloaders. If you make too little to have an income tax bill–but you’re still paying Social Security, Medicare and other taxes–Mitt’s not going to lose any sleep over you.

As The New York Times said today,
“Mr. Romney has been trying to incite the anger of a small slice of the richest Americans who need no government assistance but get it anyway, against the working poor, older Americans, the disabled workers and veterans, and even a significant chunk of middle-class Americans.”

How amazing is it hearing what Romney says when he thinks only his friends are listening? Let’s just say I never thought I’d be linking in this blog to a political commentary by conservative favorite David Brooks.

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Avoiding sales tax on the Internet? Probably not for long.

If you buy stuff online, I can almost guarantee that you are a tax scofflaw.

How can I say such a thing? Well, if you live in a state with a sales tax, you’re supposed to pay that tax on anything you buy from internet companies that are located out-of-state.

What, you haven’t sent those sales tax payments in directly to your state revenue office? Shame, shame.

You’re not the only one, of course. And the states know that millions of dollars of sales tax is going uncollected when people make purchases from companies–the gorilla in this zoo is Amazon.com–that have no physical presence or what we tax weenies call, “nexus” in a state.

The states generally aren’t going after consumers, although you may have noticed a line for internet sales tax or use tax pop up on your state returns in the past few years. It’s a lot more practical for the state to try to collect sales tax from one vendor than from hundreds of thousands of consumers.

Is it right for your friendly neighborhood bookstore to have to compete with an out-of-state company that doesn’t have to charge sales tax? Whether it is or not, states are looking for ways of collecting tax on internet sales. And internet giants like Amazon.com are fighting back.

How much does Amazon hate the idea of having to collect sales taxes? In California, the company has already spent $5.25 million to back its proposed 2012 referendum on overturning the state’s new requirement that it and other internet businesses collect sales taxes from California customers.

The Amazon-backed referendum is no sure thing–the company will have to gather more than 425,000 valid signatures before the end of September for the measure to get on the state ballot in 2012.

What’s really interesting about this is that the sales tax is, of course, a tax on consumers and theoretically wouldn’t take any money out of Amazon’s pockets. Apparently the competitive advantage of not charging sales tax is great enough that Amazon feels it’s worth spending millions to fight back.

Stay tuned–this one isn’t over by a long shot.

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