Tax Relief? Buffet Wants None of It

While most Americans are looking for tax reliefwherever they can find it, billionaire investor Warren Buffett would actually like to see his taxes increased.

How could I not mention Warren Buffett today? He is all over the news for his New York Times opinion piece about how the government should raise his taxes and the taxes of all the “mega-rich.” He says he would immediately raise rates on households with taxable income of more than $1 million, and he would add an additional increase for those making $10 million or more. He says he and his mega-rich friends have been coddled long enough by Congress, and it is time for the government to get serious about shared sacrifice.

The billionaire investor goes on to say “Last year my federal tax bill . . . was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”

And what about his mega-rich friends? He says that most of them wouldn’t mind paying more in taxes either! Unbelievable. That can’t be true. They didn’t get where they are by seeking out opportunities to pay more taxes. How could anybody say with a straight face that Buffett’s comments were not politically motivated. One thing is true; President Obama is already citing (and backing) Buffett’s words as he tours the country on his re-election campaign.

Taxes in Cuba

In communist Cuba most people work for the government. Private sector workers in Cuba must give up to 50% of their income back to the government under the new tax system. The government would like to increase the number of private sector workers, but I don’t see how they’re going to accomplish that if they don’t lighten up and give them some tax relief.

Interesting article: For Cuba’s New Entrepreneurs, the Tax Man Cometh.

Beware of Bogus IRS Emails

I have said this before, but it bears repeating. Any emails you might receive purporting to be from the IRS are more than likely spam. The IRS does not communicate with individual taxpayers in this manner. You should forward any such email to phishing@irs.gov and then delete the emails without opening them.

Apparently there is another batch of bad emails being dispersed this week. Thanks tKelly Phillips Erb at Forbes for the heads up. One is from “manager@irs.gov” and the other is from “support manager@irs.gov.” Hopefully you’re not so curious that you would risk infecting your computer, or worse, giving up personal information to identity thefts. But, if you can’t stand not knowing what the emails say, this is the gist of it:

“Important information about your tax return. We are unable to process your tax return. We recived your tax return. However, we are unable to process the return as field. Our records indicate that the person identified as the primary taxpayer or spouse on the tax return did not provided all the required documents shown on the tax form. Our records are based on information received from the Social Security Administration. Based on this information, the tax account for the individual has been locked.” The message is full of typos, which could make you wonder if it really isn’t from the government. But it goes on to request personal financial information. Its definitely a scam.

FTB’s Massive Filing Status Audit

The California Franchise Tax Board announced today that they mailed out 135,000 audit letters to taxpayers suspected of erroneously claiming Head of Household status on their 2010 tax returns. A similar audit campaign last year resulted in additional assessments exceeding $35 million. People use Head of Household status because of the tax savings, but few really understand how it works. To qualify, the taxpayer must provide care for more than one-half of the year and pay more than one-half the cost of maintaining their home. The qualifying person must be related to the taxpayer and meet the requirements to be a qualifying child or relative.

Embracing Boredom: New Book for Tax Geeks

Are taxes tedious and boring? Most people probably think so. But there is no better form of tax reliefthan the kind that comes from knowing the law and avoiding tax troubles in the first place. Check out this amusing excerpt from a book review written by Tax Notes writer, Joseph Thorndike:

Every tax professional knows the look — that mixture of pity and dismay when you tell someone what you do for a living. Sometimes it comes with a flash of fear behind the eyes — fear of taxes, sure, and probably fear of the IRS. But also, more profoundly, fear that you might actually talk about your job. God help us.

I can almost hear the chorus of complaints that readers are going to raise. “It’s not that bad! Some people are really interested in taxes!” Right. If it makes you feel better, you go ahead and tell yourself that. And by the way, I’d love to see the slides from your family trip to Yellowstone last year.

If anyone doubts the inherent tedium of taxation, we now have independent confirmation. The late, great literary phenomenon David Foster Wallace singled out taxation as the most boring topic imaginable. In writing his posthumously published novel, The Pale King, Wallace made taxes — and their administration in particular — the epitome of soul-killing tedium. “The whole subject of tax policy and administration is dull. Massively, spectacularly dull,” he writes.

Germany Cracking Down on Tax Evasion

Americans aren’t the only ones who keep Swiss bank accounts. Germans have a long history of evading taxes in this manner too, and the German government has finally established a way to mitigate the damage this has done over the years. The two countries are reportedly going to sign a deal on August 10th that would allow for taxation of German deposits in Swiss banks. Under the agreement, Swiss banks could have to pay the equivalent of $2.5 billion to the German government for damage already done due to tax evasion over the past 10 years. These German accounts will thereafter be considered legitimate. Also, some think that this accord will make a positive impact on the relationship between these two countries.

Like the IRS, German tax officials have cracked down on tax evasion in recent years, and it appears to be paying off. See full story here.

Is There Tax Reform on the Horizon?

Today the House passed the debt limit deal and tomorrow it is expected to be approved by the Senate. A 12-member panel will then be called and charged with the task of locating $1.5 trillion in budget savings by late November. Inevitably some of the panel members will want to overhaul the tax code to achieve this task. This would be a huge deal as the last comprehensive tax reform occurred back in 1986.

The tax deal itself does not look like it would raise taxes on corporations or the wealthy. However, the special committee could raise money by getting rid of their tax loopholes and subsidies. Rest assured, there will be no tax relief for the wealthy. If the committee doesn’t clean up the tax code, then President Obama has said he will be allowing the Bush tax cuts to expire in 2013. See the full story in Reuters.

IRS Offers Tax Relief in Response to Discontinued Air Travel Taxes

The Internal Revenue Service (IRS) announced that it would offer tax relief to those consumers taken for a ride by greedy airline companies. By July 22, 2011, Congress failed to extend federal air transportation excise taxes. The discontinued taxes include:

  •  A 7.5 percent tax on the base ticket price;
  • A domestic segment tax of $3.70 per person per segment (a single takeoff and single landing);
  • An international travel facilities tax of $16.30 per person for flights that begin or end in the U.S., or $8.20 per person for a flight that begins or ends in Alaska or Hawaii; and
  • A 6.25 percent tax on the amount paid for transporting property by air.

Air travelers with trips on or after July 23, 2011, who paid the discontinued taxes when purchasing their tickets on or before July 22, 2011, may obtain a refund from the IRS for the discontinued taxes paid, if the air carrier fails to refund the discontinued taxes.

In a greedy move, some air carriers have since increased their air fares in an amount equal to the discontinued excise taxes. Therefore, air travelers pay the same overall price that would have been paid if the excise tax had not been discontinued, with the air carrier profiting in accordance with the discontinued tax. It will be interesting to see if those greedy air carriers maintain their newly increase fares if and when the federal air transportation excise taxes are reinstated by Congress.

Almost One Half of Americans will Pay no Income Taxes This Year

The Tax Policy Center estimates that 46% of Americans will pay no federal individual income taxes this year, but it’s not what you think.  Many of these people are paying other taxes, including payroll, excise, and state/local taxes.  Also, don’t blame tax breaks and loopholes because, of the 46%, roughly half do not pay taxes simply because they do not earn enough income.  Most of the people in the other half of that 46% group are not paying taxes because they are taking advantage of special provisions in the tax code that benefit particular behaviors or groups (i.e., families with children and the elderly).  For more information and a nifty pie graph, see recent Forbes article.