Possible tax changes in 2010 and beyond

[MichaelB]

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.

Michael

 

[nepo]

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.

 

[BoutDone]

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.

 

[MichaelB]

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?

Michael

 

[BoutDone]

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.

 

[youbet]

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.

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........

 

[ERD50]

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.

-ERD50

 

[youbet]

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.

 

[Leonidas]

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!

...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.

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.

 

[ERD50]

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.


-ERD50

 

[ERD50]

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

(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.

-ERD50

 

[youbet]

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.......

 

[BoutDone]

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.

 

[MichaelB]

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.

 

[HFWR]

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.

 

[MichaelB]

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.
-ERD50

I fully agree. In addition, it adds to US productivity - so many of our brightest are using their talents to help others avoid taxes, an economically unproductive labor.

Michael

 

[OAG]

IMHO any time Congress creates a program that costs money (and they all do) they should also SUNSET the cost. Programs created today to solve a current problem may or may not be needed in 5 years. Why not review it then and either extend it or let it die and/or reallocate the costs to something else. Florida is one state (and I am guessing there are many more) have a Sunset provision in new entitlement programs - and it seems to work somewhat well. Of course States have a perceived problem of the "balanced budget" which most get around by "floating a 30 year Bond" issue.

 

[free4now]

I remember my parents spending ridiculous amounts of time on taxes when I was in school. Partly because all the calculations were manual, before the advent of turbotax. Turbotax also helps guide you as to what deductions or credits you might qualify for; before that I assume you would have to essentially do all the worksheets manually before you would know. But I also remember hearing about deducting credit card interest, tracking medical bills, and lots of creative accounting.

Luckily by the time I no longer could use the 1040EZ, turbotax was on the scene, and there weren't many big loopholes. I remember when I paid six figure tax bills for cashing out stock options and my parents thought I was insane not to hire a tax accountant to see how to save on taxes. Back in their day it would have been insane not do do so. But when I did it, the NQ options were ordinary income and there was really nothing you could do to get around paying the tax, so I just used turbotax.

 

[youbet]

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.

Agreed. I'm all for balancing the budget. I'm just very curious about whose back the budget will get balanced on!

Barrack is going to need more money, yet is promising tax cuts for the middle class. Obviously high wage earners will get hit with a toll, but how far down will it go? $120k? $100k? $80K? $60K? He's gotta draw a line somewhere below which it's middle class and therefore lower taxes and above which it's higher taxes to both make up for the reduction for the middle class and to fund the new programs. I'm just curious and trying to figure it out.

I'd also like to know the details of his thinking about LT cap gain tax increases. He's mentioned going to 25% and hinted that perhaps low wage earners might stay at 15%...... but all hints during interviews at this point. His web site is no help.

I don't blame him for not revealing his plans in actual dollar levels yet. Nothing to gain and everything to lose. Still, sure would be nice to know what he has in mind.

 

[Basenji]

It does not take a fortune teller to determine that under Obama, taxes will increase - significantly. Fewer ERs to be sure.

The Bush/McCain invasion and long-term occupation of Iraq is now widely expected to cost well over a TRILLION dollars (multiply that by two or three or more to include opportunity costs, along with other still-unrecognized costs related to long term effects on military personnel and equipment).

If the situation in Iraq improves enormously by 2013, McCain hopes to keep many tens of thousands of troops there (and many more if events do not go so well). So, under McCain's best-case scenario, he will probably demand another trillion dollars or so.

McCain budgets and deficits could make even the unprecedentedly large Bush budgets and deficits appear small (of course, the Clinton budgets would seem even smaller by comparison).

And that's just one of the issues on which McCain wants to spend far more federal taxpayer money.

 

[Basenji]

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

Government coffers have always increased when taxes are cut.

and "What the [non-partisan Congressional Budget Office] found, as study after study has shown, was that any new revenue that tax cuts brought in paled in comparison with their cost. This is why the deficit jumped under the last two tax-cutting presidents (Ronald Reagan and George W. Bush) and fell under the last two tax-raising presidents (George H. W. Bush and Bill Clinton)."

Quotation from article describing the findings of John McCain's top economic adviser, Douglas Holtz-Eakin, former director of the CBO at the time that it determined that recent tax cuts did not "pay for themselves."

http://www.nytimes.com/2008/04/23/business/23leonhardt.html

Almost all economists now agree that tax cuts reduce net government revenues unless one is starting from a very high tax level, say, 60-70% or higher. Even Reagan's budget director, David Stockman, the father of "supply-side" trickle-down economics, eventually acknowledged that this political concept failed and resulted in increasingly larger federal deficits and a rapidly expanding national debt.

Here is another quote from that article:
"As Mr. McCain’s plan currently stands, The Economist magazine concluded that it 'will not come anywhere close to paying for the tax cuts.' Most telling, I spoke over the past week with several other economists who admire Mr. McCain and have advised him over the years. None would defend his current fiscal package (or be quoted)."

 

[youbet]

and "What the [non-partisan Congressional Budget Office] found, as study after study has shown, was that any new revenue that tax cuts brought in paled in comparison with their cost. This is why the deficit jumped under the last two tax-cutting presidents (Ronald Reagan and George W. Bush) and fell under the last two tax-raising presidents (George H. W. Bush and Bill Clinton)."

I thought the numbers show that deficits are growing under Bush because of increased spending. That is, tax revenues are up to all time highs, but spending has increased even faster. You seem to be implying that tax revenues are down, which isn't true.

 

[Spanky]

Yeah. Back in the late '70s, I remember seeing my dad spending hours and hours with receipts and credit card statements, looking for everything that could possibly be a writeoff.

Frankly, I much prefer the tax code simpler: lower marginal rates, fewer special-interest writeoffs.

That would make the tax attorneys and accounts unhappy since they might have to change career.