Don't Mess With Taxes

The investment tax is back!

A few months ago, the possibility of a tax on investment transactions was floated.

It didn't go too far then. Treasury Secretary Timothy Geithner even noted that he "hadn't seen a version of the tax that'd make much sense."

Now, however, with ballooning deficits, war costs to pay and health care financing about to dominate the waning days of this Congressional session, the transaction tax idea has resurfaced.

The levy often is referred to as a Tobin Tax after James Tobin, the late American economist and Nobel laureate. In 1972, Tobin was the first to suggest a securities transfer tax as a way to discourage currency speculation and penalize short-term trading. Over the last 37 years, the concept has been gaining support as a way to pay for projects and avoid adding to the federal deficit.

The latest iteration, according to the Capitol Hill newspaper The Hill, is still being drafted, but preliminary word is that it would raise $150 billion each year to pay for new jobs. That's become a political and economic hot potato since the U.S. unemployment rate hit 10.2 percent in October and job losses are expected to rise even as the economy technically is improving.

A quarter percent tax for jobs: Leading the latest Tobin Tax charge, which is being formulated under the working title of Let Wall Street Pay for the Restoration of Main Street Act of 2009, are Democratic Reps. Peter DeFazio of Oregon and Ed Perlmutter of Colorado.

Their bill would tax would add a 0.25 percent tax to the sale and purchase of stocks, options, derivatives and futures. The proposal reportedly would exempt retirement accounts from the tax.

There's no word as to whether an income threshold also might be considered so that middle-income investors wouldn't have to worry about added costs when they bought and sold investments.

The Hill says that half of the projected $150 billion that the transaction tax would raise would go toward reducing the deficit. The other half would be deposited in a "Job Creation Reserve" to support new employment opportunities.

For and against: Among the groups supporting a transaction tax are Americans for Financial Reform, Public Citizen, the Service Employees International Union (SEIU) and the AFL-CIO.

The TaxProf also has compiled a list of folks who have some thoughts on a Tobin Tax.

How would your investments be affected? Are most in retirement accounts that wouldn't face the transaction tax? Or do you have significant non-retirement funds that would cost you when you made any reallocation moves?

Related posts:

• Investment transaction tax on table
• Geithner talks (a little) about taxes
• Legislative naming legerdemain

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Overcoming tax terrors

Another Friday the 13th is upon us, the third one this year.

Are you superstitious? That's OK, most of us are.

But for real terror, April 15 is probably the day that frightens most Americans.

Yep, that annual income tax filing deadline can be pretty horrifying. But there are some ways to ease your fear of filing in particular and taxes in general.

Check out 7 tax terrors and how to overcome them. Full disclosure: It's a story I wrote for Bankrate.com. That said, I think it's pretty darn good.

The terrors I identified are:

   1. Afraid I can't do my taxes myself
   2. Afraid I'll overlook a tax break
   3. Afraid I'll make a costly mistake
   4. Afraid my tax adviser is inept or a crook
   5. Afraid I'll get audited
   6. Afraid to e-file because of identity theft
   7. Afraid to file because I can't pay

After you read about these frightening tax situations, come on back to the ol' blog and let me know if they scare you, too.

If you have some fears I missed, I'd love to hear about those and how you overcame them ... if you did!

Foreign tax fears: A dread that's not new, but which has gotten a lot of attention this year, is the fear that the IRS is going to catch you if you try to evade taxes by putting your money in a foreign bank account.

This week, the Swiss private bank Julius Baer Group said that tax fears following an international clampdown on tax evasion had slowed the pace of money flowing in from wealthy clients.

Tax officials in the United States, Germany, France and Italy this year initiated legal actions against financial institutions in Switzerland and other so-called tax haven countries in an effort to get them to be more forthcoming about nonresidents suspected of stashing cash in secretive accounts.

More money fears: In addition to being afraid of taxes (or maybe just the tax collector!), many folks also suffer from broader money phobias.

Divine.ca offers some advice on conquering financial fears.

Frugal Living Advice discusses how to face your financial fears.

And Cheerful Living tackles the same topic in how to overcome financial fears.

So quit cowering! We're all here for you as you fight your financial fears and tax terrors!

Related posts:

• 13 financial superstitions for Friday the 13th
• Money superstitions for Friday the 13th
• 13 often overlooked tax breaks
• 08.08.08: Looking for good tax luck
• Paraskevidekatriaphobia*

13th Street & 13th Avenue intersection
photo courtesy The Skeptic's Dictionary

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Norwegian personal tax data revealed

Those nosy Norwegians!

Apparently, the Scandinavian country has, in addition to impressive winter (and not too shabby summer) Olympians, a major cruise line (thanks Viking heritage!) and untold ways to cook fish, a proud tradition of government transparency.

That means its residents get to see all that it's doing. And since it collects taxes, that means that Norwegians also get to see the tax and financial info of all their countrymen and women.

Yep, last week, Norwegian tax authorities issued the 2008 skattelister, or "tax list," to the media.

Yikes! Talk about TMI!

This release of tax data has been going on for years, and most media Web sites have their own search engines where Norwegians (or anyone who can read the language) can type in a resident's name and pull up detailed financial info.

While transparency is, hypothetically, a good thing when it comes to government operations, some folks worry that tax transparency is too much.

Jon Stordrange, director of the Norwegian Taxpayers Association, says the list could provide criminals an easy way to target victims. On a more mundane level, added Stordrange, revealing tax and financial info about everyone produces a "my-dad-is-richer-than-yours taunts in the playground."

And one Norwegian columnist conceded that many people treat the list as "tax porno" that allows them to check the income of neighbors of co-workers.

A little privacy, please: Here in the U.S. we appear to be among the most shameless folks in the world. Just look at what Americans will do to get on television talk shows or reality programs.

But when it comes to money, most of us play our cards very close to the chest. Heck, family members often don't know the money details about each other! That's not always a good idea, but that's for another post.

We do, however, get some self-righteous joy out of seeing who hasn't paid their taxes. That's why so many U.S. state tax offices regularly publish online tax delinquent lists.

As for the basics about the rest of us tax-law-abiding folk, though, that's private. And that's always been one of the major concerns of the IRS, not to mention one of its regular reasons why we can't complete even more tax tasks via our PCs.

So even though the IRS is making progress in upgrading its internal taxpayer data management system, don't expect to see a public list like Norway's any time soon.

Read more about Norwegian taxes: Thanks to TaxProf Blog for the foreign tax tip.

And thanks to the good professor for also rounding up additional coverage of Norway's open tax record effort:

• Scotsman
  
• BBC News
  
• New York Times
  
• The Star 
  
• USA Today

Related posts:

• Shame on you!
• Uncle Sam's tax deadbeat trouble
• Owe state taxes? Check out amnesties
• Offshore amnesty extended

Don't hate me because I'm rich

I wish that headline really did apply to me. Alas, I am not rich.

At least my solid middle-class status spares me the wrath of many of my fellow Americans.

But being mad at the wealthy, says New York Times reporter Paul Sullivan, might just backfire.

For his article All This Anger Against the Rich May Be Unhealthy, Sullivan talks with finance and psychological experts. Their assessment: Envy and hatred toward the rich has always been around, but it used to tempered by "a strong undercurrent of admiration that was holding these people up as a goal.”

But in these tough economic times, more folks are feeling like being rich is a closed club and that the wealthy have an unfair advantage.

Taxes and the rich: That perception is debatable. I'm one of those who believes that from a tax standpoint at least, wealthy folks have had a pretty good ride over the last eight or so years.

The top income tax rate of 35 percent is the lowest it's been since 1992. For a good chunk of the 20th century, the wealthiest U.S. taxpayers handed over much more (90-plus percent from 1950 to 1963) to Uncle Sam.

Capital gains rates also are at historic lows. And richer folks tend to take advantage of capital gains (and losses) more often than the general populace since wealthier individuals usually are more active investors.

Still, I don't think the wealthy deserve to bear the full brunt of animosity. As the saying goes, hate the game, not the player.

Congress makes the laws and the rich, who can afford good tax counsel, just take advantage of them (the laws, not Congress; wait ...).

Unhealthy attitude: Sullivan takes the anger analysis further. "This resentment was so palpable, I started to wonder if it was having any effect -- were the wealthy aware of it, and if they were, did they care?" he writes.

He looks at how the anti-wealth attitude could affect several economic areas, but of course I focused on the tax implications.

If the anger does translate to actual tax-the-rich policy -- and that seems to be the direction it's going, for example, with talk of health care funding options like surtaxes on the wealthy and taxation of Cadillac insurance policies and millionaire taxes at the state level -- it could end up hurting the rest of us, too.

Take charitable gifts, says Sullivan: "Increased taxes could cut into donations. While there is not a direct correlation between tax deductibility and personal donations, there is a correlation between increased taxes in a continued weak economy and charitable giving." 

As for the wider impact, there is concern that obsession with money and the placing of blame for money woes could create a generation that distrusts investing and associates wealth with greed.

"People in their 20s have watched their parents lose their money and now they think, 'You can’t trust banks, you can’t trust anyone,'" said financial psychologist Brad Klontz. "We need to do work around that. That association between money and being bad can be extremely intense."

Related posts:

• 'Tax us more,' say some rich Americans
• Fewer rich, less healthcare surtax money?
  
• IRS lets rich off audit hook
• Taxes, wealth and relativity

Geithner talks (a little) about taxes

During an economic conference last week in New York City, Treasury Secretary Timothy Geithner offered a few tax tidbits.

In response to a question about a potential securities transaction tax, Tax Analysts' Lee Sheppard reports that Geithner acknowledged that he "hadn't seen a version of the tax that'd make much sense."

That should calm the nerves of those who freaked out earlier this year when talk of a transaction tax was revived. Also referred to as the Tobin Tax after James Tobin, the late American economist and Nobel laureate who first suggested a securities transfer tax in 1972 as a way to discourage currency speculation and penalize short-term trading, the concept has been gaining support as a way to pay for projects and avoid adding to the federal deficit.

Transaction tax advocates say it could raise between $50 billion and $100 billion per year. Opponents counter that not only is such a tax unworkable, but if enacted, investors would simply find other avenues for their money, resulting in devastating job and tax losses.

As for the stimulus plan, the Treasury head said the Obama Administration must be careful not to withdraw economic stimulus programs too quickly. However, Geithner insisted that the White House isn't yet contemplating a second economic stimulus program. (The Administration, in throwing its support last week to a new round of $250 rebate checks for retirees, was careful not to call this possible payout a second stimulus.)

Asked about the prospects for tax reform, Sheppard reports that Geithner dodged the question and indicated that it would be far down the line. Economic growth and public confidence about the economy's future take precedence, he said, followed by deficit reduction, which would require tough political choices.

With those items before it on the policy to-do list, it's probably safe to say that Obama's stab at tax reform is going to suffer the same sad fate as did Dubya's tax revamp effort.

For more on The Buttonwood financial conference, underwritten by The Economist and held at Pace University, check out coverage by the sponsoring magazine, MarketWatch, Reuters and the Wall Street Journal/Dow Jones Newswires.

Related posts:

• Investment transaction tax on the table
• More retiree rebates on tap?
• White House seeks tax advice
• Presidential tax panel, take 2
• Small business stimulus tax breaks

Joe Taxpayer's weekly roundup

What better way to wrap up a weekend than with a handy collection of financial tips, courtesy Joe Taxpayer.

As always, Joe's pulled together a nice group of financial bloggings, but you've got to check it out if only for his first item. Let's just say it's a link to a provocative suggestion for placement of a credit card perk by a disgruntled user of plastic.

Although it's hard to compete with such a interest-grabbing lead, I'm also pleased to report that my item on the tax implications of the prez's Nobel Prize also sneaked into the roundup.

Thanks, Joe!

Retirement, RMDs and racing

The stock market has been creeping upwards, which is great news for folks like me, who are hoping one day to kick back and do exactly what we want, not what we have to do in order to pay bills.

But there's still a lot of retirement planning work to be done by all of us, regardless of where we are on the road to our hoped-for golden years.

When you combine the recent market crash with the fact that many folks used whatever retirement funds they had, both IRAs and company 401(k)s, to live on when they encountered day-to-day financial straits, the country's overall retirement outlook is not encouraging.

So unless you want to work until you die, you need to start finding ways to save for retirement again.

By the book: You might want to start with Daniel Solin's "The Smartest Retirement Book You'll Ever Read," if you can spare some cash (around $22; less if you shop online) you were planning to put into your retirement fund.

While the book apparently doesn't live up to its title according to the New York Times review, which gives it a B-, reviewer Paul Brown does note, "There is certainly a lot to like here, beginning with the premise that if you can't figure out how to make your money last as long as you do, all your retirement planning will have been for naught."

Solin also provides a checklist you should follow in withdrawing your funds (start with money from post-tax retirement savings accounts) and takes a good, hard look at reverse mortgages.

What about your workplace savings? Even if your employer no longer matches your 401(k) contributions or has cut back the amount he adds, a workplace plan still could be a good investment.

Not only do you get a bit of a tax break now by putting in pretax money, the automatic payroll contributions make such accounts an easy way to save for retirement.

But just because your money goes into your 401(k) each pay day without you having to think about it, that doesn't mean you should ignore the account.

Flexo at Consumerism Commentary points out why it's so important to keep track of your workplace retirement money in How is Your 401(k) Retirement Account Performing?

Flexo also offers a bit of reassurance via a link to CNN Money's look at how 401(k) participants have prevailed over the most punishing market in decades.

What about current retirees? Because of the tanking market, Congress gave retirees a bit of a break in 2009. Usually, once you turn 70½ you have to start taking some money, known as a required minimum distribution or RMD, out of any tax-deferred retirement accounts you own.

It's easy to understand why the IRS wants you to start tapping those funds. It's been waiting for decades to get it's piece of that retirement pie. Plus, such 401(k) and traditional IRA distributions are taxed at ordinary income tax rates.

So that older folks wouldn't have to draw down already battered accounts, lawmakers said affected account holders didn't have to take an RMD in 2009. The IRS provides a table you use to calculate your RMD based on your age and the account's balance at the end of the previous year. For 2009, that meant using the horrific 2008 market values.

But some folks might not have gotten the message since the RMD waiver decision was made so late in 2008 (don't you just love Congressional procrastination?) and the news got lost in the holiday/end-of-year rush.

Whatever the reason, if you as an IRA or other tax-deferred retirement account owner (or spousal  beneficiary) did take a 2009 RMD, the IRS says you still have time to put the money back if you wish.

The deadline has been extended to Nov. 30 or 60 days from the date you got the money, whichever is later, to chang your mind. So if you took your RMD in, for example, February, you now can roll the money back into a tax-deferred account without any penalty by the end of November.

Note, however, that this option is not available to non-spouse beneficiaries who are prohibited by the tax code from ever doing a rollover. Get additional details in IRS Notice 2009-82 or from your tax and/or financial adviser.

No retirement yet for one racer: All this retirement talk means nothing to NASCAR driver Mark Martin. He turned 50 earlier this year, but he has no plans to stop doing his job any time soon.

In fact, as the oldest full-time driver in NASCAR's top racing series, the Spring Cup, Martin is atop the 2009 championship points list as the racers head this afternoon to Fontana, Calif.

As one of Mark's demographic, if not automotive skill level, peers, I'm delighted by the success he's having. And I talk about why the #5 Chevrolet driver's career season is good not only for him and his team owner Rick Hendrick, but also for NASCAR and the sport's fans of all ages in my latest motorsports column for a couple of Randall-Reilly Publishing magazines.

Check it out in Views from the Grandstands in Truckers News and as Crazy Woman Driver in Changing Lanes.

And as for today's race, I say, Mark, go get those racing whippersnappers!

Related posts:

• Will you outlive your nest egg?
• Fading 401(k) company matches
• 401(k) Do's and Don'ts
• Required retirement withdrawals waived … in 2009
• Crazy Woman Driver takes a Sunday drive

Offshore haven heresy: Taxes!

You know the global economy is bad when an iconic tax haven is contemplating, for the first time, collecting taxes.

The Cayman Islands, long known in story and song as the go-to place to hide income from other nation's tax collectors, has been told by British officials who oversee the offshore financial nation to impose spending cuts and consider some form of direct taxation on businesses.

According to Offshore Haven Considers a Heresy: Taxation in today's New York Times, the Caymans are "a tax-free home for 9,253 hedge funds and many more banks and companies that pay small fees to establish the Caymans as their official domicile while operating mostly elsewhere around the world."

That's worked very well for the islands and its high-rolling customers ... until this summer.

"In June, the full effect of the financial crisis touched shore with the effect of a hurricane. A drop in financial and tourism revenue transformed a projected surplus into a deficit of about $100 million — a huge gap for an annual budget of some $800 million — and the leader of the Cayman government, W. McKeeva Bush, warned of a fiscal crisis," reports the Times.

Name note aside: The Caymans' government is headed by W. McKeeva Bush. Really? Is another W. Bush as the leader of a country merely a coincidence or something that demands more genealogical research?

Add to the mix the growing global pressure for a system-wide crackdown on offshore tax havens -- or as the Caymans prefer to call themselves, a tax-neutral portal -- and you have the makings of an island financial disaster.

Same old, same old: In some ways the Caymans are starting to resemble fiscally troubled U.S. jurisdictions.

A construction company recently stopped work on a school, saying payments had been delayed, according to the Times. *Cough, California, cough*

Public employees are hearing that they will have to take pay cuts to keep their jobs. *Cough, Birmingham, Ala., cough*

And the publisher of The Cayman Net News told the Times that the Cayman government owes his newspaper more than $50,000 in advertising an printing costs.

Still time to tell the IRS: If you have a secret financial account outside the United States, you still have time to tell the IRS all about it.

Oct. 15 is the deadline for special voluntary disclosures by taxpayers with assets in previously undisclosed offshore shelters. If you don't reveal the accounts' existence to the IRS by then, you could face severe civil penalties and, where applicable, possible criminal prosecution.

You or your tax pro can start the voluntary account disclosure ball rolling by calling your local IRS Criminal Investigation office. You also can call the IRS Voluntary Disclosure Hotline at (215) 516-4777. No, it's not toll-free, but if you're stashing cash offshore, you can afford it.

You can find additional details on the voluntary disclosure program and process at the IRS' special Web page.

Related posts:

• Offshore amnesty extended
• UBS deal sends wrong message
• Tax evasion, tax fraud, tomato, tomahto
• States also eyeing UBS accounts

Lazy Man's island view of PF

Lazy Man and Money is on holiday, but he didn't let a little thing like time off stop his Personal Finance Links (Bon Bini Aruba Edition).

Check out the 21 posts Lazy Man found worthy this week. They range from the eternal question, What does money mean to you?, posed by Frugal Dad to Two Pennies Earned's look at inexpensive ways to get organized to 51 unusual money-saving tips from readers of Wisebread.

Be sure to check those and the other 18 links in Lazy Man's Aruba vacation collection. I'm pleased to report that my aging parents, ageless money issues post is one of them.

Now I just need to figure out how to get the hubby and myself to the Caribbean!

Personal Finance Carnival #223

Can you believe it's been a year since the economy started crumbling? If you lost a job -- or car or house or spouse -- because of financial difficulties, you're all too aware of what has happened over the last 12 months.

Many folks are still struggling, but thanks to the personal finance blogosphere, there has been and continues to be help out there.

That's the focus of Personal Finance Carnival #223, hosted this week by Taking Charge.

In Financial meltdown, a year later, Emily Starbuck Gerson has compiled a very and useful nice collection of recent  personal finance advice.

Some of my favorites are:

• 11 Ways to Spice Up Your Emergency Fund, posted at Get Rich Slowly,

• Four Fifteen-Minute Financial Fixes, posted at Good Financial Cents, and

• 11 Dumb Ways to Get Into Debt, posted at Financial Highway.

Find your own personal pieces of financial help at the full post-meltdown PF Carnival #223.

Who knows, my post on The cost of health care, Senate-style, which made the carnival cut, might just make your favorites list!