Something I Was Wondering About

Are credit card rewards considered taxable income by the IRS?:

According to the Internal Revenue Service (IRS), credit card rewards may be taxable as income. The types of rewards and the way in which you receive them determine whether they are considered taxable. In many cases, the rewards are viewed by the IRS as a discount, not as income. For example, a cash-back program for using your credit card is treated as if it were actually a post-purchase discount. There are some credit card reward programs that offer large sign-up bonuses, however, which the IRS may end up counting as taxable income.

Business purchases are completely different than personal purchases, however. If you have a business credit card, a good general rule of thumb is that any rebates on those business purchases are subtracted from the costs of your purchases, reducing the amount that you can deduct from your taxes. This is not technically taxable income, but the net result does increase your tax burden.

Types of common credit card rewards that are not counted as income include cash-back programs, travel miles bonuses, accumulated points towards future purchases and credit card sign-up bonuses that require a financial transaction to be realized.

If, however, the sign-up bonus for your credit card does not require that you make any purchases or charge any amount to your card, then you are likely to receive a 1099-MISC tax form in the mail in conjunction with the bonus. Since the IRS requires that these benefits be treated as income, you must document your rewards on the 1099 form. In some circumstances, the issuing credit card company reports the rewards as income to the IRS and state authorities, but this is usually only the case when state law requires such reports.

You do not necessarily have to receive money in order for the sign-up bonus to be considered taxable. Anything that is provided without being attached to the use of your card – such as airline miles, gifts that are tangible goods or other valuable rewards – are normally taxable income. If you have questions about your credit card reward programs and their tax implications, it is best to consult an actual tax expert and not the issuing credit card company.

If you receive a 1099-MISC form in the mail as part of a rewards program, do not ignore it.

But wait, there's more...

Five Reasons Taxes Should Be Simplified

5 Tax Nightmares:

1. Owing Money for Your Deceased Spouse

2. Being Left on the Hook for Tax Preparer Fraud

3. Paying Your Identity Thief’s Tax Bill

4. Dealing With an Inept Auditor

5. Having Your Refund Stolen

I don't understand why we have to still "do" our taxes, or worse yet pay someone else to "do" them.

We can automate paying bills, automate withdrawals from our paycheck or bank account, and automate our investments. Why can't the government automate our taxes?

Bitching About Taxes

One day recently Jamie Dimon looked around his house and found some spare change, so he decided to buy some stock.

JPM's Dimon buys $26.6M of company stock:

Shares of JPMorgan (JPM) are jumping in early trading after CEO Jamie Dimon bought $26.6 million worth of the bank’s stock. The purchase, disclosed in a company filing, added 500,000 shares of JPMorgan Chase to Jamie Dimon’s portfolio.

It's nice that Jamie Dimon is showing faith in his own company. That's a positive thing, isn't it? It also must be nice to have $26.6M to invest.

The only reason I'm using Jamie Dimon as an example here is because his stock purchase is current news. He is convenient.

Members of the Republican Party love to complain about taxes. They also love to complain about poor people. If you are poor and you don't have $26.6M to invest it is your fault for not working hard enough. They also hate the minimum wage and are always against raising it. Does any of this sound familiar?

Let's play with numbers while thinking about Republican bitching.

Consider the fact that one could invest $2,660,000.00 in a New York Municipal Bond Fund or ETF. Before I go on I want to emphasize that I'm talking about $2.66M, which is considerably less than the amount that Jamie Dimon invested. For the bitching one per centers this really is spare change.

New York Municipal Bond ETF's currently yield about 2.58%. Doing the math, we find that this investment will yield $68,628.00 a year in interest. That translates into $1319.77 a week, and $32.99 an hour for a 40 hour time period.

But wait, there's more! If you live in New York State this money is completely tax free!

But wait, there's even more! Someone who makes this investment does not have to lift a finger to make $68,628.00 a year!

But wait, there's even more! Someone who makes this investment and doesn't need to live off of this money can let it compound. Do you think that rich CEO's and other one-percenters need to live off their investments while they are currently earning multi-million dollar salaries?

But wait, yes, there's even more! Are you feeling sorry for some one-percenter who has maxed out his 401(k), his IRA's, and every other tax shelter he and his army of financial advisors can think of? Don't feel sorry, municipal bonds will rescue them.

But wait, there is still even more! Municipal bonds help with things like:

Municipal bonds are securities that are issued for the purpose of financing the infrastructure needs of the issuing municipality. The financed infrastructure needs vary greatly but can include schools, streets and highways, bridges, hospitals, public housing, sewer, water systems, power utilities, and various public projects.

Municipal bonds can pay for all those things that everyone likes, but no one, especially Republicans, want to pay for.

Let's examine some Republican bitching.

Here are two quotes from Rush Limbaugh on taxes:

Government is not capable of caring. Government gets things done through coercion. They fine, they penalize, they tax, they confiscate, they jail, they bully to get what they want.

As far as I'm concerned, the people who aren't paying taxes don't get to run around claiming that they built everything, that they built the roads and that they built the bridges and so forth.

One way that local governments can get things done is by issuing municipal bonds. This involves no coercion, fines, penalties, tax, confiscation, jailing, or bullying. Municipal bond investors may be paying other taxes, but in terms of their municipal bond investment they are "the people who aren't paying taxes", and yet they actually can claim "that they built everything, that they built the roads and that they built the bridges and so forth."

Let Bernie Sanders tax the rich, they can handle it.

Trump Tax Plan

Your Dividend Portfolio: What If Donald Trump Were President?:

Simply put, Trump’s plan to lower the tax rate paid by American’s wealthiest citizens likely would not be revenue-neutral for the federal government, and in fact would likely increase the deficit unless economic growth took off to an unprecedented degree and/or Trump changes his plans to increase military spending significantly.

To be sure, any tax plan proposed by any potential president rarely is adopted and enacted as-is by Congress. And given the rabid partisanship in Washington, Trump’s plan—even if Republicans were to continue their majorities in the House and Senate—probably would not emerge unscathed. That said, the Trump tax agenda is generally one that most Republicans would support in principle, and if largely adopted, would be a boost for dividend-paying stocks and for the owners of those stocks.

We Could Always Tax The Catholic Church

Pope Problems: Papal Visit Incurs Significant Taxpayer Expense:

Pope Francis has landed and American taxpayers are footing the bill.

According to the Philadelphia Inquirer, the World Meeting of Families agreed on Friday to shoulder Philadelphia’s costs for hosting the pope. The Meeting is sponsored by the Holy See’s Pontifical Council for the Family and is held every three years in a different world city. This year, it’s located in Philadelphia.

“The contract is backdated Sept. 10 and states that the nonprofit was to have provided the city with a security deposit of $2.5 million on Sept. 14,” wrote the Inquirer’s Brian Moran. The fees will cover various police, emergency, sanitation, and other city services, as well as a license for a papal parade down public highways.

But taxpayers will also incur substantial costs for the pope’s American tour, which will include stops in Philadelphia, New York City, and Washington, D.C. For example, public funds will be used to pay for millions of dollars in security costs incurred by the Secret Service and other federal agencies.

At Fortune magazine, Michal Addady notes that the federal government typically foots the bill for D.C.’s security needs, but that there’s a real chance the $4.5 million annually budgeted for this purpose won’t be enough to cover the cost of the pope’s visit.

 I think this must be another example of evil atheists persecuting Christians.

I'm Still Looking For The Trickle

GOP tax plans benefit rich despite populist campaign talk:

Jeb Bush went to Detroit and talked about leveling the playing field. Marco Rubio wrote a book about helping the working class. Rand Paul is promising to expand the Republican Party beyond its traditional base.

Yet all three Republican presidential candidates have offered tax proposals that would, for reasons such as nomination politics and tax rate realities, overwhelmingly benefit the wealthiest.

In doing so, they have drawn criticism from Democrats who call it proof that the GOP's eventual nominee will mainly try to help the rich.

Even some conservatives expressed concerns after Bush released his proposed tax cut last week. Then there was the analysis Thursday from the Washington-based Tax Foundation that concluded his plan would initially help the top 1 percent of earners 10 times as much as it would those in the bottom 10 percent.

Bigger Than The Bible

From Tax System: Too Complex To Be Constitutional? by Jack Hough:

Douglas Shulman says he uses a hired tax preparer because the U.S. tax code is so complex. That's a bad sign. He's the I.R.S. commissioner.

The tax system has clearly gotten too complicated. The code itself holds about 3.8 million words, nearly five times as many as the King James Bible.

Dave Camp's Big Problem

From The New Congress and the Coming Class War by Eric Alterman:

Ronald Reagan and George W. Bush talked incessantly about fiscal responsibility and lost no opportunity to denounce deficit spending, but these principles flew out the window when it came time to cut taxes on the rich. The new bunch are even worse. Incoming House Ways and Means Committee chair Dave Camp recently told George Will that one of the biggest problems with our tax system is that too few poor people pay income tax.

One solution for the “problem” of too few poor people paying income tax would be to increase the income of poor people so that it exceeded the cutoff point where income is taxed. The right wing should be happy with this. More poor people would be paying income tax, and they would still be poor.

Taxing

Personally, I would rather see my tax dollars going to universal health care than to unnecessary and illegal wars.

From National Priorities Project Tallies Cost of War:

These new appropriations bring total war-related spending for Iraq to $747.3 billion and for Afghanistan to $299 billion, with total war costs of $1.05 trillion.

It’s also upsetting to me to learn of another useless and illegal use of tax dollars.

From When prayers fly at Capitol, someone gets mad by Marc Hansen:

Those pesky atheists are at it again. First, they put ads on metro buses telling nonbelievers, "You are not alone."



Now, according to a letter sent to Iowa legislators, they want our elected officials to stop inviting clergy to begin each day of the 2010 session with an official prayer.



Besides violating the separation of church and state, the Iowa Atheists and Freethinkers say, it costs too much. Clergy members receive $10 per prayer and mileage from the home district and back.

The group's president — quoting the House Financial Office — says the state spends $2,606 per session on the prayers. If it seems like walking-around money, even walking-around money is scarce these days.



What's more, during the prayers, the doors to the House and Senate close, meaning clerks, pages, and legislative staff members are held captive.

The Military System's Virtues

From Holder's reasonable decision by Jim Comey and Jack Goldsmith:

…Holder's critics do not help their case by understating the criminal justice system's capacities, overstating the military system's virtues and bumper-stickering a reasonable decision.

There are many things that I do not understand about the far-right wing. Here is one. Why do they see the Republican Party as well as the United States military as infallible? Why is the Democratic Party constantly wrong in their eyes? These things seem like statistical impossibilities to me.

From what I understand, the logic (or illogic) of the right wingers is that the government is bad, can’t be trusted, screws everything up, and takes all their money in the form of taxes.

Here is what I don’t understand. The military is part of the government. From the perspective of the right, why is the military always good, why can they always be trusted, why do they never screw up, and why does the enormous amount of tax dollars given to the military never seem to bother the right? Why does the right have faith in military courts, but not civilian courts?

Redefining Truth

From Redefining 'Wealthy' by Jim McTague:

WHO WILL BAIL OUT THE TAXPAYERS WHO are paying for all those bailout buckets? Contrary to fables told to gullible voters and journos by President Barack Obama and other Democrats, the rich didn't enjoy a virtual tax holiday under George W. Bush. To the contrary, the share of the tax burden paid by households in the top 20% of U.S. income distribution -- those with average pretax incomes of $248,400 -- increased significantly between 2000, Bill Clinton's last year as president, and 2006, the latest year for which reliable data is available. You will find this in an April report of the relatively neutral Congressional Budget Office. It was brought to our attention by Curtis Dubay of the Heritage Foundation, a conservative think tank.

The Obama administration is preparing to tax the upper-crusties even more, justifying it as a form of retribution for the big breaks they allegedly received from Bush at the expense of middle-class and poorer folks. Dubay's analysis of the CBO data finds that the top 20% of households in fact paid a record-high 86.3% of all taxes in 2006, versus 81.2% under Clinton.

If Democrats increase the tax burden, they risk killing the golden geese.

Is that so? I wonder how many of you who are willing to believe these numbers, also believed Bernie Madoff’s numbers at one time?

Dubay contends that shifting more of the tax burden onto high-income earners is dangerous. Those who pay little or no taxes don't feel the pain of the high cost of big government, and so they are more inclined than taxpayers to clamor for more public services. This demand for a nanny state in turn drains more money from the top 20%; it is impossible for government to go on funding itself this way indefinitely.

Those who pay little or no taxes feel the pain of having no job, nothing to eat, and nowhere to live. If the top 20% would stop hogging all the money and pay workers a decent wage, then maybe the bottom 20% would have more money to contribute to the tax base. As opposed to, like, you know, nothing.

Also, who has been on the receiving end of the bailout money? The top 20 per-centers or the bottom 20 per-centers?

And No, It Would Not Be Socialism, It Would Not Be Fascism

Extremely rich people gambling with other people’s money is what got us into the financial mess we are currently in. I’m in favor of something that would encourage the richest amongst us to invest more wisely, rather than gamble speculatively. And if it helps pay for the mess we are in, all the better.

From The Need to Tax the Wealthy by Dean Baker:

The vast majority of the income gains in the United States over the last three decades have gone to the richest 5% of the population, largely as a result of policies that were explicitly designed to redistribute income upwards. Therefore it is far more appropriate to tax the richest 5%t of families who have prospered than the broad middle class who have suffered.

Of course taxes can be designed in a better or worse manner. The best way to increase taxes on the wealthy, in addition to allowing the Bush tax cuts to expire, would be to apply a modest financial transactions tax (FTT).

There is a long history in both the United States and the rest of the world with FTT. Until 1964, the United States imposed a tax of 0.12% on new stock issues and 0.04% on stock trades. Britain still has a tax of 0.25% on each stock sale or purchase, raising five billion pounds a year. This would be equivalent to roughly $30 billion a year in the American economy.

Robert Pollin and I calculated that a scaled set of FTT on stock, futures, options and other financial instruments could raise approximately $150 billion a year. This would go far towards bringing the long-term budget deficit down to a manageable level.

A FTT would be hugely progressive. While many middle income families own stock, their holdings are dwarfed by the holdings of the wealthy. Furthermore, few middle income families are active traders. Their intention is to hold their stock to support their retirement or their kids' education, not to shuffle it around on a daily or hourly basis. Some mutual funds do engage in frequent trading. An FTT would encourage investors to move their money to funds that are less active traders, thereby allowing them to escape most of the impact of the FTT.

Most of the burden of the FTT will fall on wealthy individuals who are active traders and also on the financial industry itself. Either way, the tax will be overwhelmingly borne by the wealthy. By raising the cost of trading, the tax will discourage the trading that provides the revenue for the financial industry. A well-designed tax should also discourage the creation of exotic assets that may serve little useful purpose, since it could lead to the tax being paid multiple times. For example, the holder of an option on a stock would both pay the tax on the purchase and sale of the option and also on the purchase and sale of the stock itself, if the option was ever exercised.

While most taxes impose some economic cost in addition to the revenue raised, a FTT may actually increase economic efficiency. By discouraging financial transactions that are entirely rent-seeking in nature, a FTT will reduce the resources used up by the financial sector, without affecting at all its ability to serve the productive economy. The reduction in trading volume will of course reduce liquidity to some extent, but American financial markets will still be quite liquid. Even with a 0.25% tax on a stock sale or purchase, transaction costs will still only be raised back to their mid-80s levels. And, the United States had a large and very liquid stock market in the 80s.

There also is a powerful element of justice in imposing a FTT in the current situation. The main reason that the budget situation has deteriorated so much in the last two years has been the damage caused by the irresponsibility and greed of the financial industry. In this way, a FTT can be seen as sort of a user tax, where the industry is effectively forced to pay for some of the damage caused by its practices, just as we might like to tax the output of industries that pollute our air or water.

In short, there is a very good argument for increasing taxes on the wealthy given the current budget situation. The alternative is taxing those who are not wealthy. And, there is no better way to tax the wealthy than to tax their gambling in financial markets. A financial transactions tax will raise revenue at the same time that it makes the economy more productive. This is a genuine win-win situation.

The Small-Business Boogeyman

Do politicians ever tell the truth? Usually when they speak of small businesses and taxes what they really mean is large businesses and taxes.

From The Small-Business Myth:

SMALL BUSINESS is the cute puppy of American tax policy, along with its related breed, the family farm. Invoke small business, and the inevitable response is the policymaking equivalent of awwww, how sweet. Suggest that a proposed change might hurt small business, and you might as well be advocating torturing puppies. Now we like a cute puppy as well as the next editorial board, and we're all for small business, too. But the problem with the way this argument is deployed is that the facts often do not support the claims of harm.

Just recently, the small-business boogeyman came up in the debate over the estate tax -- specifically, whether it is unfair to impose a tax on estates in excess of $7 million per couple (the level this year) or whether the first $10 million of every estate should be exempt from taxation. Predictably, the advocates of the $10 million proposal, Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.), raised the small business/family farm canard. "Many have relatively low profit margins and are considered 'wealthy' by the government only because they own expensive equipment or land," they wrote in a letter to The Post.

In fact, nearly all small-business and family-farm estates are already shielded from having to pay estate tax. If the estate tax were kept at its current level, as President Obama advocates, only 430 business or farm estates would owe any tax whatsoever in 2011, according to an estimate by the Brookings Institution-Urban Institute Tax Policy Center. Moreover, it's not true that these estates would be forced to liquidate to come up with enough money to pay the estate tax. At current levels, 13 family farms and 41 family-owned businesses would not have had enough liquid assets to satisfy estate taxes in 2005, according to a study by the Congressional Budget Office. Even these would probably not have to be sold on account of a tax hit, because payments can be spread over a 14-year period.

“… only 430 business or farm estates would owe any tax whatsoever in 2011…”

I wish politicians would run on something other than taxes. Then they may actually have to think and do something. I’m glad to see the Washington Post publish this.

If Only This Were True

I think that a more secular America would be a very good thing.

From Obama's 'war against churches and charities' by Jim Brown:

Former House Speaker Newt Gingrich says President Obama's plan to raise taxes on upper-income earners is designed to create bigger government and a more secular America.

A Tax Form Question

Why does line 1(d) of Schedule D say Sales price when a better term would be Proceeds or Proceeds from sale or Total proceeds?

Just wondering.

Who Cares?

Grover Norquist does not like President Obama. Grover Norquist does not like children. Grover Norquist is not in favor of higher taxes for poor people. Grover Norquist is in favor of cancer for poor people.

From Newt. Again. by Matt Bai:

I got a sense of what this kind of combative approach might sound like when I called Grover Norquist, the anti-tax zealot who convenes a weekly meeting of influential Republican operatives. Norquist was fuming that Obama, who had pledged not to raise taxes on anyone but the wealthy, had just signed a children’s health care bill that included a tax on cigarettes.

“He’s a liar,” Norquist said of the president. “He knew he was lying the whole time. Shame on him. He can no longer look us in the eye and say he won the election fair and square.” This seemed a little strong to me — it wasn’t as if Obama had just dumped nine million stolen votes out of a suitcase onto his desk — but Norquist was getting himself worked up now. “Rich people like him can afford an extra 61 cents,” he went on. “Poor people can’t. And he does not care.”

Let me try to understand this. Is Grover Norquist actually in agreement with Obama here? Because it sounds to me like Norquist is saying that a higher tax on rich people is OK, and that a higher tax on poor people is not OK. So, Grover Norquist favors a progressive tax? Just like Obama does.

Phew, I’m glad I didn’t have to write about Newt!

Simplify

"Simplify, simplify." Henry David Thoreau

From How to Avoid a Tom Daschle Tax Problem by Ron Lieber:

Now that President Obama has lost a couple of nominees to tax errors, maybe he’ll consider the possibility of finally simplifying the tax code.

Make Them Pay

From Obama Considers Tax on Cabinet by Andy Borowitz:

President Barack Obama is mulling a controversial new tax program that would require members of his Cabinet to pay taxes owed under the Federal tax code, the White House confirmed today.

While the unorthodox tax proposal is reportedly "only in the planning stages," it is being eyed as a possible way to balance the Federal budget.

"According to projections, if members of the Cabinet actually paid their taxes, we could wind up with a budget surplus in excess of $18.2 billion," said Obama economic adviser Paul Volcker.

Mr. Volcker said he strongly favored the plan, but added, "Fortunately for me, I'm not officially in the Cabinet."

But imposing taxes on Cabinet members may be easier said than done, critics of the plan warn.

"Remember, these people are not used to paying taxes," said one White House source. "They are going to be hopping mad about this."

Your Tax Dollars At Work

Why does AIG think that any of its workers are “valuable”?

From AIG to Pay Millions To Top Workers by Carol D. Leonnig:

American International Group plans to pay out $503 million in deferred compensation to some of its top employees, saying it must tap the funds to keep valuable workers from exiting the troubled insurance giant.

News of the payments to top AIG talent comes as the federal government has just put more money into saving the company from bankruptcy, beefing up the total public commitment to $152 billion. Meanwhile, members of Congress are questioning the company's expenditures -- including lavish business trips to resorts -- during a time when taxpayers are on the hook for the bailout.

Read the rest here.

Let's Make The Wealthy More Wealthy

With each passing year the wealthiest among us become even more wealthy. The rest of us are having our jobs shipped overseas, and our sons and daughters shipped to Iraq. Those of us that still have a job are not being paid a fair wage, while crooked and incompetent CEO's are being paid too much. And what little wealth we have is slowly being eroded away.

John McCain frequently says that he wants to create more wealth. That’s good. However, he doesn’t want to spread the wealth around. He wants those that are the wealthiest among us to become even more wealthy. That’s not good.

The playing field is rigged, and it benefits those who have the most money and power. McCain wants to rig the playing field to be even more in their favor. He tells us that somehow this will benefit all of us. I don’t believe him. I’m still waiting for my “trickle” from Reagan, Bush, and Bush.

Barack Obama wants to level the playing field a little bit, so that it will benefit the little guy a little more. We already have plenty of wealth in the United States. What is wrong with spreading it around a little? What Barrack Obama proposes is not socialism. It is Americanism. It is fairness and equality.

You work hard, don’t you deserve a bigger slice of the pie?

John McCain’s campaign slogan could easily be: “Let’s make the wealthy more wealthy.” Does Warren Buffett or Bill Gates or the Walton family actually need more money? Or do you?

Update:
According to my interpretation of Edward Wolff, Barack Obama’s “socialist” plans will benefit capitalism more than John McCain’s proposals (what are they?) to grow the wealth:

If that is not convincing to a person, the second reason is that inequality is actually harmful to the well-being of a society. There is now a lot of evidence, based on cross-national comparisons of inequality and economic growth, that more unequal societies actually have lower rates of economic growth. The divisiveness that comes out of large disparities in income and wealth, is actually reflected in poorer economic performance of a country.