Last Minute Dash: When, Where & How To File Those Last Minute Tax Returns
No matter how close to the wire you get, as long as your return is postmarked by April 15, the IRS considers your federal income tax return filed on time. If you mail your return via first class mail by the due date and it is received and processed ...
The costs of tax preparation help can vary, but unlike the taxes themselves, preparation costs don’t get any smaller for low-income people. At times, they can even get larger. The New York Times ran an article this week on unscrupulous tax preparers who exploit information asymmetries to grab large portions of people’s refunds. Some of them even deliberately file the refundable credits fraudulently so that they have a larger refund to draw from:
There are plenty of stories here in Alabama of tax fraud in which the taxpayer is complicit. There are also many in which taxpayers find out only after being audited that their refunds had been fraudulently inflated by preparers, who since then has[sic] disappeared.
The incidents described are not isolated. Improper payments on the EITC alone exceed $11 billion per year and many of those are the work of unscrupulous tax preparers.
The federal tax system is vulnerable to this abuse because of its opacity; it takes the income of low-wage earners through the payroll tax, deposits it in the Social Security Trust Fund, which lends back to the rest of the government through bonds, which then uses the money to distribute back to people in the form of refundable tax credits, which are difficult to compute and sometimes stolen by charlatans.
The reason people part with their money so easily is that – through all the employer-side payroll deductions and accounting gimmicks and withholding – they never truly realize it was theirs to begin with.
The federal tax code is wretchedly and unnecessarily complex, and it reserves its most wretched and unnecessary complexities for the very poor, driving them into the hands of mountebanks – as if poverty alone weren’t indignity enough.
The OECD’s Taxing Wages 2014 publication finds that the “personal income tax has risen in 25 of the 34 OECD countries in the past three years,” with the United States being one of those countries.
Since 2005, the U.S. has seen its average tax burden on employment income increase from 29.8 percent to 31.3 percent, largely due to the expiration of the lower rate on payroll taxes at the start of 2013.
When comparing the U.S. to the OECD, the U.S. tax wedge on labor of 31.3 percent (the percent of labor cost that is due to taxes) is below the OECD average of 35.9 percent.
It’s important to remember that this comparison is for an average wage income earner. The U.S. taxes average wages at a lower rate than many OECD countries partly because the U.S. relies on high income earners more than any other country in the OECD.
In the U.S., the top 10 percent of taxpayers earn 33.5 percent of the income, but pay 45.1 percent of the taxes. Compare this with France, where high income earners make 25.5 percent of the income, but only pay 28 percent of the taxes, or the United Kingdom where the top decile earns 32.3 percent of the income, but pays 38.6 percent of the taxes.
President Obama and Vice President Biden's 2013 Tax Returns
The White House (blog)
The President's effective federal income tax rate is 20.4 percent. The President pushed for and signed into law legislation that makes the system more fair and helps the middle class by extending tax cuts to middle class and working families and asks ...
Obamas Paid IRS 20.4% on 2013 Gross Income of $481098: TaxesBusinessweek
Obamas' federal tax rate rose as their income fell in 2013Los Angeles Times
all 319 news articles »
Senate Finance Committee Member Pat Roberts (R-KS) has introduced a bill to repeal the excise tax on high-cost employer-sponsored health insurance plans.
Known as the “Cadillac Tax,” this Affordable Care Act provision levies a 40 percent marginal excise tax on high-cost employer sponsored health insurance plans starting in 2018. The purpose of this tax is reduce the generosity of employer sponsored healthcare plans by taxing benefits over a certain value.
Current law, which excludes employer-sponsored healthcare plans from taxation, encourages employers to compensate employees in generous healthcare plans over wages. This has been linked to over-utilization of healthcare due to the fact that individuals are less likely to face the true cost of their care and leads to higher healthcare costs overall.
Health benefits should be included in the tax base. There is no legitimate tax policy rationale to exclude them. However, the “Cadillac Tax” is a poor substitute for just eliminating the employer-provided healthcare exclusion. Eliminating this hole in the income tax would have at least given Congress additional revenue to lower rates for everyone.
Alan Viard of the American Enterprise Institute and Eric Toder of the Tax Policy Center have a new paper that explores two ways to fundamentally overhaul our badly broken corporate income tax:
In this report, we describe the challenges facing the corporate income tax and discuss two structural reform options that could address them. One option would seek international agreement on how to allocate income of multinational corporations among countries. The other option would eliminate the corporate income tax, but would tax American shareholders of publicly traded companies at ordinary income tax rates on their dividends and accrued capital gains. We discuss the benefits and limitations of each option.
The first option, known as formulary apportionment, would require countries to agree to a system of carving up the worldwide profits of multinational corporations according to some combination of payroll, property and sales occurring in each country. This is how U.S. states divide up interstate profits, but there is no agreement on standards or any indication that the system works well. Over time, states have moved towards a single sales factor and added “throw back” rules and other complexities, resulting in high compliance costs and very little corporate tax revenue.
The second option gets at the root of the problem, the corporate income tax itself, its inherent distortions and the inability to track profits accurately across borders. The solution proposed is to eliminate the corporate income tax and instead increase shareholder taxes. This makes tremendous sense, except for the part about taxing capital gains on an accrual basis, using market valuation, rather than on a realization basis. The authors discuss the various problems with taxing accrued capital gains, including that it a) depends on accurate market valuation at a single point in time, b) could force liquidation or otherwise bankrupt investors without sufficient cash on hand to pay the tax, and c) takes no account of inflation which means investors can end up paying extremely high rates on real capital gains.
But the other big problem with accrual based capital gains taxation is it discourages investment, because it literally taxes current investments. In contrast, realization based capital gains taxation taxes the sale of investments, and to the extent that money is used for consumption it is a tax on consumption. It is true, as the authors point out, that taxing capital gains realizations at excessively high rates can “lock in” low-return investments and prevent the efficient movement of capital to higher return investments. However, that is reason to keep tax rates low, not to switch to accrual based taxation.
Lastly, the authors claim that accrual based taxation of capital gains is necessary to pay for some of the lost tax revenue from eliminating the corporate income tax. They assume the entire amount of corporate income tax collections ($357 billion) would be lost, and then they unrealistically assume that eliminating corporate income tax would have no impact on investment or GDP and thus no offsetting impact on the other sources of federal tax revenue, such as personal income tax and payroll. That is, they are using a static analysis that ignores any economic effects. Our model takes these economic effects into account (it is dynamic), and we find eliminating the corporate income tax would boost GDP and personal incomes about 2 percent, and since most federal tax revenue is from taxing wages and personal income, such a change would actually increase total federal tax revenue by about $18 billion. See the chart below and read the study here.
The bottom line is there is no need to pay for eliminating the corporate income tax, and certainly not by taxing capital gains on an accrual basis. The corporate income tax is distortive, uncompetitive and increasingly unworkable in the age of globalization. As a result the rest of the world is steadily getting away from taxing corporate income. We should too.
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To offer some perspective on just how long 111 days really is, here are a few things you could accomplish in the time it takes the nation to reach Tax Freedom Day on April 21.
The average required qualifying time for the guaranteed entrance to the New York City Marathon is about 4 hours. At that pace, if you ran non-stop, 24/7, you could completed 666 races for a total of 17,462 miles.
A regular NFL season lasts 256 games, around 3 hours each, for a total of 768 hours of game time and commercials. You could watch the equivalent of every single game of more than three NFL seasons, including commercials, before reaching Tax Freedom Day.
The Beatles’ discography of studio albums, played end to end, would last around 760 minutes. You could listen to its entirety more than 210 times.
IMDB’s list of the top 250 movies of all time totals around 580 hours of total screen time. You could watch the entire list 4.5 times before the national Tax Freedom Day arrived.
In 1969, the Apollo 11 mission took 3 days and 3 hours to reach the moon, and 8 days and 3 hours for the total round trip. At those rates, we could reach the moon 98 times or complete 13 Apollo 11 missions.
Recap: In the 111 days it takes Americans to reach Tax Freedom Day, you could:Run 17,462 miles, or 666 NYC Marathons Watch more than three complete regular NFL seasons Listen to the entire discography of The Beatles’ studio albums 210 times Watch IMDB’s top 250 movies 4.5 times Complete 13 Apollo 11 missions or travel from the earth to the moon 98 times
With two Illinois House Democrats having announced their opposition to House Speaker Michael Madigan’s (D) “millionaire tax” proposal, it doesn’t look like it will reach the 71 vote threshold to get on the ballot. With that, news outlets are proclaiming the proposal essentially defeated. Madigan placed the blame squarely on Republicans, with his spokesmen saying Republicans “prefer and protect millionaires over school children.” Republicans have responded by noting that the bill failed due to lack of support among Democrats, who had sufficient members to get an amendment on the ballot if they were united.
If it had passed, Madigan’s “millionaires tax” or, as it was called in the amendment proposal, the “tax for education,” would have enshrined a specific tax rate and bracket structure in the Illinois constitution, and earmarked the funds directly for school districts on a per pupil basis. This plan had numerous problems, as I have written before. It failed to include inflation indexing, didn’t clearly define income, locked Illinois into a very specific tax policy effectively forever with high barriers to change, and would have impacted a large amount of business income, significantly worsening the state’s business tax climate.
The Illinois legislature has until May 5 to pass amendment proposals to be placed on the ballot. Thus, while Madigan’s plan appears out of the running for now, it could theoretically come up again in the next month. The same is true of various progressive income tax plans which, thus far, have failed to gain sufficient legislative traction to get on the ballot.
Meanwhile, even if no structural changes make it on the ballot, the next round in the Illinois tax policy debate will revolve around the “temporary” tax hike to 5 percent on individual income. Illinois’ individual income tax rate is scheduled to reduce to 3.75 percent on January 1, which poses budgetary problems for policymakers facing difficult spending choices. Governor Quinn (D) has indicated his support for making the 5 percent rate permanent, but the legislative fate of the proposal remains to be seen.
See a comparison of all the major Illinois tax plans here.
Read more on Illinois here.
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Last Minute Tax Tips for Business Owners-What if I Can't Pay All My Taxes?
Regarding estimated payments and penalties, the IRS states: “Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current ...
What last-minute tax filers should knowStandard-Examiner
INTERNAL REVENUE SERVICE: Changes that could affect your income taxesWicked Local Plympton
Tax time! Tips to make filing easierWBIR-TV
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