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Old 05-15-2008, 01:58 PM   #21
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I remember doing taxes back in the days of loopholes. Instead of finishing in an hour or two, it was more like a week or two of intensive work going over every possible loophole to see if I could worm my way into it. As a result my taxes were not excessively high, but what a waste of manpower (or womanpower, in my case).
Well, it depends on other factors too. My taxes take me a looooong time to figure out.

Two kids in college. There are several interacting, confusing programs for tax deductions/credits. After you enter your data, the tax program grunts for about a minute, and runs the scenarios to figure out which combination is best for you. But, some of these can only be used X times, so w/o a crystal ball, it's still a guess. Which combination is a benefit is a function of your income, their payments (one plan credits you a higher %, but has a lower max), what year of school they are in, some are one per family, etc, etc ,etc.

Couple that in with my desire to convert as much Trad-IRA to a Roth IRA as I can, and stay in the 15% bracket, and it's a mess.

In 2007, I messed up. I meant to buy back a covered call that I sold on some highly appreciated stock. The stock rose so fast, then fell, and I forgot to check on the closing day, and I got called and took a big cap gain. I was shocked how that one event affected my tax situation. Yes, I appeared to be 'richer' that year, but not only did my tax bracket go up, but I lost some deductions, could not convert any of my IRA, lost ALL the college credit/deductions, and - no stimulus check for YOU! Another deduction I was going to look into, required me to recalculate a bunch of stuff based on the AMT. I could not even follow the directions, the tax program seemed to leave me hanging, so I just gave up on that one.

So while my income went up by 1.8X, my tax bill went up by 7.2X!

I'm actually a supporter of progressive tax rates, yes, even when I am the one hit by them. But those tax tables do NOT tell the whole story. All these funky little loophole rules made my taxes go up a very steep wall.

-ERD50
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Old 05-15-2008, 02:54 PM   #22
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Yep! But in comparison with the few remaining loopholes today, back then there were so very many more and many were pretty strange! I really do appreciate tax code simplification.
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Old 05-15-2008, 03:12 PM   #23
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Yep! But in comparison with the few remaining loopholes today, back then there were so many more and many were pretty strange!
I can't really say. I guess my taxes were fairly straightforward in those days. Or maybe the pain has faded with time? What years are you talking about?

I don't doubt that the were more complex then for many people, I'm just saying there is plenty of complexity today, if you happen to get trapped by it. Plenty of people have kids in college, and BTW, almost EVERY article I read describing the HOPE versus Lifetime Learning Credit got it wrong. They all said ' go for the HOPE if you qualify'. Geez, I had to dig into it to learn that what they were telling me was wrong. Sure, a 100% credit sounds better than a 20% credit, but they didn't peel the next layer of that onion to see that that the 100% credit is limited to $1,500, and the LLC is limited to $2,000.

Here's my notes from 2006:

Hope maxes out at $1500 on $2000 expenses
LLC maxes out at $2000 on $10,000 expenses (better for us)

Since we had over $10,000 of eligible expenses, well, it seemed to me that $2,000 is better than $1,500. That eluded most financial writers. Then there are a few more twists/turns for all of that, based on years in school, number of kids applying in a family, etc.

If politicians want to provide incentives for people getting an education - why not do it some straightforward method instead of a bunch of conflicting/overlapping regulations. Oh, I did say 'politicians' - guess I answered my own question

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Old 05-15-2008, 03:13 PM   #24
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Yep! But in comparison with the few remaining loopholes today, back then there were so very many more and many were pretty strange! I really do appreciate tax code simplification.
Wasn't a filer in the bad old days, but I can attest to the strangeness. I was looking closely at a company that owns and rents barges on the Mississippi. Management indicated that there are a lot of elderly barges from the late 1970s and early 1980s that would have to come out of service soon and that this would likely be a boost to the industry. I asked why there were so many barges from that era. Reply: there was a depreciation-related tax loophole of some sort whereby doctors, lawyers and other high income folks came out ahead by buying a new barge, taking the tax write-off, and operating it at a marginal profit or even a loss for a while. Totally driven by the funkiness of the tax code back then.
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Old 05-15-2008, 03:19 PM   #25
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I remember the CEO of one of the little startups I was at in the 80's buying billboards in swamps in florida (or something like that) for the writeoffs.
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Old 05-15-2008, 03:26 PM   #26
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In 2007, I messed up. I meant to buy back a covered call that I sold on some highly appreciated stock. The stock rose so fast, then fell, and I forgot to check on the closing day, and I got called and took a big cap gain. I was shocked how that one event affected my tax situation. Yes, I appeared to be 'richer' that year, but not only did my tax bracket go up, but I lost some deductions, could not convert any of my IRA, lost ALL the college credit/deductions, and - no stimulus check for YOU! Another deduction I was going to look into, required me to recalculate a bunch of stuff based on the AMT. I could not even follow the directions, the tax program seemed to leave me hanging, so I just gave up on that one.-ERD50
If only that event pushed you over the limit for the stimulus and this year you'll be back under, you'll get the same stimulus when you file '08 taxes.

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Old 05-15-2008, 03:45 PM   #27
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I have never seen this before but I have to say I like it as it will put me in the 15% bracket for ever. Is that for married or single. If it's for married couples, what's the 15% cutoff for singles.
Sorry, forgot to mention it. That's for married couples filing jointly and there are not official numbers, rather approximations based on where the brackets are today and the reversion to the old brackets.
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Old 05-15-2008, 05:27 PM   #28
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Wow, you know what tax rates will be in the future? Can I borrow your crystal ball for an afternoon?
It does not take a fortune teller to determine that under Obama, taxes will increase - significantly. Fewer ERs to be sure.
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Old 05-15-2008, 05:40 PM   #29
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It does not take a fortune teller to determine that under Obama, taxes will increase - significantly. Fewer ERs to be sure.
Certainly not like the republicans, those most trustworthy stewards of our tax money. McCain has it - he will make the deficit disappear by cutting taxes! Now, where have we heard that before?

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Old 05-16-2008, 06:52 AM   #30
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Certainly not like the republicans, those most trustworthy stewards of our tax money. McCain has it - he will make the deficit disappear by cutting taxes! Now, where have we heard that before?

Michael
Deficits do not increase when taxes are cut - they increase when spending isn't cut.

Government coffers have always increased when taxes are cut. More people get to keep more of their money and they spend it keeping the economy strong. That is how jobs are created.

How did Clinton go from deficit to surplus? Raising taxes - no. Cutting spending on the military which severely weakened our defenses. He also benefited from a strongly divided Government which resulted reduced spending via gridlock.

Current deficits are the result of too much spending. Military, homeland security, medicare, etc. Yes, Republicans strayed from fiscal conservatism. But, how many 9/11 strikes against the US have you experienced? Over reaction to a National crisis? Perhaps - we shall see. Actually, the deficits would have been worse if the tax cuts had not provided the necessary economic stimulus they did.

Why exactly is it that the Government, Dem & Rep, are falling all over themselves now to give the people back their hard earned money? In effect, a tax cut. Election politics - some will say. BECAUSE CUTTING TAXES HELPS THE ECONOMY!

I only suspect that taxes will increase under Obama. Don't really know because he has not laid a single specific plan for anything. Guess we'll just have to close our eyes, hold our noses, click our heel together and hope.
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Old 05-16-2008, 07:08 AM   #31
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I only suspect that taxes will increase under Obama.
He's been pretty clear about that. Whether each of us agrees or disagrees on that course of action, it is what he plans.
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Don't really know because he has not laid a single specific plan for anything.
As I've indicated in a few other posts, I'm trying to get a handle on some specifics. He says he wants to roll back the Bush tax cuts and decrease taxes on the middle class. While this appears to be an Oxymoron since the Bush tax cuts reduced taxes for the middle class, I think what Barrack means is that he wants to let the Bush cuts expire and replace them with a new set of brackets of his own. These brackets will include dramatic increases for high wage earners and increases in dividend and cap gain tax rates. But there will be a line drawn defining his interpretation of middle class where he'll reestablish reductions for the middle class.....not necessarily reductions from the current levels but reductions from the prior Clinton levels. $75k is the number I come across most often.

He's also planning to remove the burden of SS taxes for low wage earners. He's proposing low wage earners continue to pay into SS, but that up to $1k be rebated to them on their income taxes. For low wage earners who pay no income tax, I assume this means an addition to their EIC.

But I agree, he's being quite vague. Whether more detail will surface during the general election campaign is anybody's guess. I doubt it. He is proposing a lot of addtional spending and does admit that the offset of reduced spending from an immediate, 100% pullout from Iraq will only partially cover it. He also is talking balanced budget. So tax collections will have to increase. His economic thinking is that increased collections only result from higher rates. We can debate that until the sky falls.......

About the only thing I'm doing is some minor planning of potential actions if a substantial increase in LT cap gains is announced. Much of my RE portfolio is unrealized cap gains in TSM index funds I'd have to decide whether to liquidate and take the hit at 15% or continue to hold and take the hit at a much higher rate over the following years........
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Old 05-16-2008, 07:17 AM   #32
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Wait a minute - the tax complications from the 80's that brewer & CFB mentioned were *corporate* taxes. I thought Want2Retire was saying that *personal* taxes were so much more complex back then?

Which may well be the case - it's just not my personal experience. I just dug out my tax forms from the 80's - looked darn simple to me, even with 2 incomes, mortgage, and a kid in day care. Basic 1040, Sched A,B,and D, and a little worksheet for dual-income families. What were all these complex personal deduction hoops that people had to go through back then?

I did it with pencil& paper, used a spreadsheet later on just to make it easy to check the math. I didn't seem to need a computer program to run various scenarios to determine which deduction to take, or need to re-run the same sheets twice - one with AMT one w/o.

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Old 05-16-2008, 07:27 AM   #33
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ERD50....

One area that simplified for me was when the minimums for med expenses and misc deductions appeared. I'm now a standard deduction guy where before I tracked every nickle DW spent on teacher related job expenses, etc. How about home offices? Pretty hard to take now and fewer try. Before..... keep lots of records and take the family room and the family computer as a deduction. Casualty losses. Used to take something every year. Tree blew down. Weeds grew in the lawn. Whatever. Charitable contributions. Keep records of every nickle I thought I remembered handling to someone plus maybe some creative estimates. Now... pretty tight rules. Lots and lots of opportunities to be creative with long lists of BS any of which would be expensive for the IRS to audit you on so they seldom did. There was a general feeling that if you weren't being audited from time to time, you weren't being creative enough, just a sucker! I'm not going to pull old foms, but those a few of the things I remember.

The loopholes that annoy me the most though are those that keep really high income folks from paying anything near what you'd think they are paying....... Most involve trusts, incorporating, blending personal with business assets in creative ways, etc. I'm absolutely no tax expert.

I hear ya that with kids in college and AMT you've got some complications. And that's enough. Don't need more.
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Old 05-16-2008, 08:02 AM   #34
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I was shocked how that one event affected my tax situation. Yes, I appeared to be 'richer' that year, but not only did my tax bracket go up, but I lost some deductions, could not convert any of my IRA, lost ALL the college credit/deductions, and - no stimulus check for YOU! Another deduction I was going to look into, required me to recalculate a bunch of stuff based on the AMT. I could not even follow the directions, the tax program seemed to leave me hanging, so I just gave up on that one.

So while my income went up by 1.8X, my tax bill went up by 7.2X!
Similar situation here, although I knew going in that I was going to have high cap gains last year. But the effect of those gains on so many other credits and deductions was not a pretty sight. I think about the third time I read "It appears that you do not qualify for this credit." I wanted to take the program back to the store because it just had to be defective!
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...suspect that taxes will increase under Obama. Don't really know because he has not laid a single specific plan for anything. Guess we'll just have to close our eyes, hold our noses, click our heel together and hope.
I did hear him say that he wanted to raise capital gains, but no details other than indicating they were too low. Sounds more like a campaign slogan rather than a plan, but the intent seems obvious.
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Which may well be the case - it's just not my personal experience. I just dug out my tax forms from the 80's - looked darn simple to me, even with 2 incomes, mortgage, and a kid in day care. Basic 1040, Sched A,B,and D, and a little worksheet for dual-income families. What were all these complex personal deduction hoops that people had to go through back then?
I recall that there were some complex possibilities back then, nothing specific off the top of my head, but I do remember scratching my head wondering who did some of those weird shelters/deductions/credits.

Talk about simple - I have old tax returns that my parent's and in-laws had stuck away somewhere and wound up in our possession. Just a few pages done in pencil.
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Old 05-16-2008, 08:05 AM   #35
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ERD50....

One area that simplified for me was when the minimums for med expenses and misc deductions appeared. I'm now a standard deduction guy ...
I'm still not getting it. I itemized then and itemize now. So for someone itemizing under both the 'old' and current, what was so much more complex about the 'old'? What was the diff in complexity in claiming charitable contributions between then and now?

- - - trip to basement ----

Medical had to be 5% of AGI to deduct (1985), so no deduction for me then, even though I itemized. Now that I pay the increased retiree premiums, I meet the limits and can deduct, so now I track every penny now, didn't then.

One small silver-lining - I procrastinated on paying a couple med/dental bills in 2007, then the offices were closed at the EOY, so I ended up paying in January, 2008. So it turns out my deductions are limited in 2007 anyhow, so it should help to have those pushed into 2008.


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Old 05-16-2008, 08:38 AM   #36
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Some were asking about Obama's tax plans (remember, it is up to Congress to present it to him for signing). I found this on his site, creates as many Q's as it answers, I think:

http://obama.3cdn.net/b7be3b7cd08e587dca_v852mv8ja.pdf
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(1) Create a new “Making Work Pay” tax credit of up to $1,000 for America’s working families

(2) Create a new universal mortgage interest credit that will benefit low and middle-income homeowners

(3) Honor America’s seniors by eliminating income taxes for those making less than $50,000 per year

(4) Simplify tax filings so millions of Americans can do their taxes in less than 5 minutes

(5) Eliminate special interest loopholes and tax breaks and crack down on international tax havens
Those are the bullets, there *are* more details in the pdf, but still lacking a lot. W/O details as to tax brackets, it's hard to form an opinion. Nothing in there looks like a red flag, some looks good, but the devil's in the details. Is there more info scattered around the site?

No taxes on seniors under $50,000 - OK, but then what? How do the rates stack up if you make , say, $75K?

As far as closing corp loopholes and trying to fight offshore corpoarate HQ's to hide profits - I'll go back to my KISS principle: Eliminate corporate taxes. The public just pays for them (and compliance, and loophole costs) in the products/services, and it makes us less competitive overseas. Phase them out over the next 5 years, and you would have eliminated probably 80% of the tax code right there.

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Old 05-16-2008, 09:13 AM   #37
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Some were asking about Obama's tax plans (remember, it is up to Congress to present it to him for signing). I found this on his site, creates as many Q's as it answers, I think:

http://obama.3cdn.net/b7be3b7cd08e587dca_v852mv8ja.pdf
Yep, I'd read that and it doesn't say much. Lot's of political rhetoric. So-called working families and seniors won't pay any taxes and will receive huge benefits........ OK, fine. I like that. But, where will the money come from?

Barrack has spending plan increases in mind that, by his own admission in an interview I can't relocate right now, will far exceed the savings gained from an immediate and complete pull-out from Iraq. He'll make up that delta by increasing taxes on the rich. I'm just waiting for him to clarify his definition of "rich." If he's promising to eliminate taxes for the lower class and elderly making less than $50k, reduced taxes for the middle class and raise taxes on the high earners, what does the slope look like? Where will the bracket breaks be below which some will be paying less than today and above which some will be paying more?

If a dual income couple makes $100k will they be paying more? How about $80k? $60k? Where will he draw the line?

I'm just nosey I guess.......
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Old 05-16-2008, 09:23 AM   #38
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Yep, I'd read that and it doesn't say much. Lot's of political rhetoric. So-called working families and seniors won't pay any taxes and will receive huge benefits........ OK, fine. I like that. But, where will the money come from?
If you are ER'd or planning on ER there is a big red target on your back. YOU will be paying until your income drops to the level that Obama thinks is Wright.
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Old 05-16-2008, 09:46 AM   #39
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If you are ER'd or planning on ER there is a big red target on your back. YOU will be paying until your income drops to the level that Obama thinks is Wright.
How clever.
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Old 05-16-2008, 09:47 AM   #40
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I recall that GHW Bush raised taxes, which had much to do with the "surplus", heh, of the Clinton years, and caused conservatives to bolt, resulting in Clinton's victory. We'd have been so much better off if Pat Buchanan was elected...

Seems to me that we're paying for deficit spending through "hidden" taxes, even if the 1040 reflects a "reduction". Interests rates need to be low to "cure" recession. No wait, interest rates need to be high to keep the dollar strong, and encourage "investors" to buy our bonds.

Of course, one could argue ad nauseum about what programs need cut/increased, blah blah blah, but, in the end, the outgo needs to be matched by income.

I was too broke back then to be affected, but couldn't one itemize credit card and other interest back when (70s?), which would have meant quite an increase in paperwork.
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