It has recently been released by the SSA (social security administration) that the maximum earnings subject to the Social Security tax will increase to $127,200 per year from $118,500. Last year there was no increase.
The result of these tax increases is $1,331.10 per year.
The same press release noted that the COLA (cost of living adjustment) would be .3%. As a result the typical retiree will receive a $5 per month increase in benefits.
Your Social Security “investment” is a horrible investment with a minimal to ZERO return on your “investment” over time. It does not take long with a financial calculator for this to be seen.
For example; if you live 10 years (starting age is 67 today) on the maximum benefits ($32,244 per year) that annuity would be worth $318,000 at the time the payments start. However, the value of an annuity of $15,774 per year (the maximum you are NOW being told to pay) for a 35 year work career invested at 2.5% (the current value of a 30 year treasury bond-considered the “safest” investment possible) would be worth $888,000!!
So, by my calculation the government is stealing $570,000 of your hard earned dollars ($888,000 - $318,000) over the course of your working life!
It is important for you to know that your social security benefit is NOT a contractual right.
This issue was decided in 1960 by the U.S. Supreme Court in Flemming v. Nestor. The Court emphatically stated that “…entitlement to Social Security benefits is not contractual…”
What is it then? It is welfare pure and simple.
The tax is a tax-not an investment. And, the payments to retirees are just transfers of money from those who pay in to those who receive; because the system is NOW INSOLVENT. There is no money there and there hasn’t been any money there since 1965 when the Johnson administration transferred the money into the general fund.
It is vital that YOU do not RELY on the government for your future well-being.
While we do NOT give investment advice, we DO help you plan a tax savings and WEALTH BUILDING strategy that will help you to be truly financially secure.
We encourage you to call us to set up an appointment to get started.
“April Showers” is a song written in 1921 by Louis Silvers and B.G. De Sylva. Al Jolson popularized the tune in the 1921 musical “Bombo”. It became a staple of his and many other artists through the years.
The song contains these popular words:
Though April showers may come your way,
They bring the flowers that bloom in May.
Well, if you live in Indiana you certainly can appreciate the lyrics in this tune. We’ve had a large amount of rain in April and it has continued in the early part of May.
There’s a saying in Indiana; “If you don’t like the weather just wait a few hours and it will change.” That’s very true.
But inevitably May does come and the flowers bloom and you see beautiful landscapes like the one I have pictured above.
Indiana is one of the most beautiful places in the world in the spring because of the abundant rain we get in April. Grass is green. Flowers are in full bloom.
The song, “April Showers” like many songs of that era present a contrast that is important to understand. In fact, the song’s first stanza says, “Here is the point you should never miss…”
The point of course is an enduring one; that beauty only comes after the hard work. We reap what we sow. That difficult times will eventually be resolved and good times will come.
This is an important point for financial and tax planning as well.
If you want the big refund and the lowered taxes that comes with it, you need to do some planning. The planning is the “showers”. Planning can be cumbersome. It can be slow to implement. It can be drudgery.
But the planning will inevitably lead to a great conclusion; an improved financial standing.
We will help you through the “showers”, the drudgery.
We will help you create a tax plan that will maximize your earnings and lower your taxes.
Taxes are inevitable. BUT the amount of tax you pay is NOT.
Give us a call today for an appointment so that next year you will see the flowers bloom.
Tax filing season is in full swing and someone is going to be preparing your tax return for you.
You might say, but I’m going to be using a software program like TurboTax or TaxAct. Then, they are preparing your tax return are they not?
One is really only preparing their own tax return if they get the paper forms out and fill out those numbers by hand looking carefully at the hundreds/thousands of lines of instructions and illustrations.
NO ONE does that anymore-OK maybe 1% of the 1% does it that way. But seriously NO ONE.
Should I use a tax software or a live person?
TurboTax and other tax software products can be helpful-for a LIMITED number of people. If you have a very simple tax return, with only W-2 wage income AND that W-2 has NO numbers on it after line 6 (Medicare tax withheld) then you will probably be fine; and, if you are single.
If you are married with children and have ANY type of income beyond a W-2 you should be using a QUALIFIED tax professional.
I say qualified because not all tax preparers’ (even those who are “registered”) are qualified. My office has two CPA’s and an Enrolled Agent (a person who has taken a rigorous exam and must prove their ability each year by taking over 20 hours of continuing education each year). I have over 30 years of experience. My fellow CPA has six years of experience. My Enrolled Agent has 8 years of experience.
The problem with using a tax software program is simply this…..
You don’t know what you don’t know
Here are just a couple of illustrations. These are COMMON situations in my tax office.
You are married and you both work. Your spouse has a prior tax problem and your refund is going to pay that problem. The “problem” could be a host of things but most commonly it’s back child support. Question-should you file a joint return or a separate return? The computer program won’t tell you unless you already know what to do!!
Answer. You should almost NEVER file a separate return. But there are a FEW times when you should. Do you know when those times are? There is a form you can file called “Injured Spouse Allocation”. Its form number 8379. That form will protect your refund from the tax problems of your spouse and you won’t be lowering your overall refund by filing separate. Will the tax software tell you that? NO! And it could cost you thousands of dollars in confiscated refund money. How does that $35-$100 tax software fee look now? Not knowing is costing you a lot more than $35.
Here is another situation. You are divorced with children. This is the year your ex gets to claim the kids. Does you software tell you how to give the exemption to the ex while retaining the credits for you? After all, in most of these cases the children live with you not the ex. Not knowing the answer to this question can literally cost you over $5,000; and the tax program will NOT tell you how to do it. YOU have to know already and YOU have to tell the tax software program what to do.
And all this is just on PAGE ONE of the 1040. There are dozens of other common traps that will cost you money.
We have saved our clients thousands-yes-THOUSANDS of dollars in taxes because WE KNOW. We don’t rely on the software program to tell us tax law. We use the software programs for efficiency. We use it to file electronically. We don’t use it to teach us tax law.
Come see us this year.
As the end of 2015 approaches I would like to share just a few tax ideas for you to consider. It is always a wise to review your financial situation so you can LOWER your tax liability and INCREASE your refund.
You should always make sure your withholding payments and estimates are sufficient because even though you have until April 15 to make your last payment you might still be hit with underpayment penalties.
Here are some ideas:
Offset Capital Gains with Capital Losses. The market has been good for most of the year for most people. You might have capital gains you want to capture. The tax rates for capital gains are lower than for ordinary income. So, take advantage of this. In fact, if you can offset your capital gains with losses in your portfolio (watch out for “wash” transactions) you might in fact pay NOTHING on your capital gains. If you have a way to lower your income (including the capital gain) to the 15% bracket, you would pay NOTHING on the capital gain tax. That would beat even Warren Buffett’s tax bracket!
Increase Charitable Deductions. If you follow this blog, you know that we advocate starting a private foundation. But, even if you don’t have a foundation that you control, there are tremendous advantages for increasing your charitable deductions (cash or non-cash). The government seems to be trying to find ways to “cap” just about every deduction we have, but charitable donations are not one of them. You can still deduct 100% of your donation up to 50% of your adjusted gross income.
Maximize Your Retirement Deduction. This is a huge NO-BRAINER. Pay yourself and take a big tax deduction. Most programs will match up to 4% of your salary also. Where else can you get this kind of return on your money without even earning a penny on your investments? The deduction has been increased to $18,000 for 401-K plans with a $6,000 catch-up contribution if you are 50 year of age or older. This is a bargain. Just do it.
Maximize Your HSA. A “Health Savings Account” is just about the greatest idea since sliced bread. If you have a high deductible health insurance plan (is there anyone out there who doesn’t) you can contribute income tax free AND FICA tax free $6,650 ($3,350 if you are single) to this program. That’s a savings of $1,500 even if you are in the 15% tax bracket. And the best part is that you get the deduction whether or not you spend the money! These accounts are completely portable. They can be inherited. They are so much better than the old FSA’s (use it or lose it). If you are still trying to deduct medical expenses by itemizing (and getting over that 10% AGI hurdle) I feel sorry for you. Get one of these and MAX it out!
Get Mileage Reimbursements. The IRS is giving 57.5 cents per mile in 2015. Wow! I realize most people commute to one job and are not eligible for mileage deductions or reimbursements. But maybe you are one of those people that have two or more jobs. Or maybe your job requires you to travel from office to office. If so, take some time and document those unreimbursed miles that you have driven on the job. Just 10,000 miles is going to give you a $5,750 deduction.
These are just a few ideas. As always contact The Eldridge Group for any year-end tax planning that is needed. But don’t wait very long! The end of the year is almost here.
Love Your Neighbor as Yourself-Tax the Rich and Share the Wealth
So chanted protesters on Monday in Chicago at the Board of Trade.
Chicago’s budget woes are legendary as are those of the entire state of Illinois. Pensions are underfunded. Services are being cut back. All of that despite the city’s general revenues being nearly $7 billion (yes, that’s billion) and additional grants making up another $1.69 billion for total revenue in 2014 of $8.67 Billion.
Wow! Eight billion just doesn’t go very far anymore does it?
The protesters want to add a transaction tax of between one and two dollars for EVERY transaction at the Chicago Board of Trade which they claim would add over $10 billion to the state revenue budget.
As I watched coverage yesterday I noticed some of the protesters were in clerical garb. They were quoting from Matthew 19:19. Of course the first half of the statement is from the Bible, the second half is not.
I find it interesting that those who claim to know the Bible are advocating what amounts to legal coveting (a violation of the 10th commandment) by virtue of cloaking that coveting in the mantle of “Loving Your Neighbor”. In the Matthew 19 passage, Jesus was asking that someone donate their OWN money voluntarily to the poor. He was NOT advocating stealing the money from the so-called “rich” and giving it to government; where who knows where it will really end up?
As jealousy and covetousness are stoked in this country by politicians whose appetite for your money never seems to have a limit, I advocate that all of you who work for a living find a good CPA and investment advisor who understands that your money is; well, YOURS!
Aside from the fact that NONE of these actions will help the economy of Illinois or Chicago, I find protests like the one on Monday personally offensive. I have clients in Chicago and Illinois. Some of them are in the “1%”. Let me tell you, they work hard. They work long hours. Nothing was given to them. They are very generous with the money they have EARNED. These protestors generate NOTHING of value to our economy. They are takers, not makers.
Nevertheless, you productive people in the economy out there need to take note of this rising tide of hate, jealousy and covetousness. Get prepared.
The Eldridge Group has programs in place that will lower your taxes and protect your wealth. We understand and believe fervently that the money you have earned is yours. We will do all that we can to help you keep it.
The Congressional Research Service estimates that the current tax gap in the United States is $450 billion dollars. That amount is itemized as follows: $376 million is under-reported liability; $28 billion is non-filing of tax returns; and $46 billion is underpayment of tax liability.
The Congress and the IRS say this is a serious problem. It represents a “non-compliance” rate of about 16%.
The IRS has implemented six strategic actions by which to combat this “shortage”.
The IRS had attempted to regulate ALL return preparers in 2011 with new requirements that all preparers be registered. Registration hinged on passing an exam and taking continuing education courses during the year. But, the federal courts struck down that attempt by the IRS in 2014, thus requiring a change in the law by Congress.
I say all because currently ALL attorneys, CPA’s, and Enrolled Agents ARE registered and do take continuing education.
The thing that stood out when I read these recent reports was that return preparer regulation is a part of an effort to reduce the tax gap. You see, most people would think that return preparer regulation is needed to ensure that the taxpayer/filer gets good advice and submits an accurate tax return to the government.
And that is true…but…that’s not the MAIN reason the IRS wants to regulate ALL tax return preparers.
I find it interesting that with the government there is always a reason behind the reason. That is, whatever the stated reason is for advancing legislation, there is always a REAL reason. And you may think that regulating tax preparers is a good thing. (I would be a CPA with or without their regulatory process.)
But just remember-the real reason is they want more of your money!
We are here to help ensure that you get the best service possible to REDUCE your tax burden-not increase it. Don’t fall prey to the “Tax Gap”.
The Internal Revenue Service recently issued Fact Sheet 2015-21 which encourages employers to think about the classification of those workers they pay. Are those workers employees? Are those workers independent contractors?
The IRS is very interested in this issue as there are many taxes that are triggered by employment.
The most common is the Social Security and Medicare tax that the employer must pay. The overall tax is 15.3% of total wages (up to $118,500 for the social security portion) and the employer must pay half of that. It is the single biggest largest tax (in dollar terms) that most people pay. And, employers would sure love to escape that tax.
The IRS suggest that you to fill out form SS-8. Turn that form in and they will give you a determination within six months. Be advised that more than likely it will be in favor of the employee determination rather than the contractor determination.
There are actually some pretty simple common law rules that this “fact sheet” mentions.
1. Behavioral. Does the business owner control?
2. Financial. Are the business aspects of the worker’s job controlled by the business owner?
3. Type of relationship. Are there written contracts?
The first two are often called “means and methods”. If the worker controls the means (the financial responsibility) and the methods (the manner in which the job is carried out) then more than likely you do have a contractor relationship.
But, that needs to be followed up by a real CONTRACT! This is the document that many employers forget. In fact, if you have a contract spelling out the details of the work and the amount paid for the work, then you will probably win any employment vs. contractor dispute.
The financial/tax implications are huge. If you are determined to be an employer after many years of not withholding these social security and Medicare taxes, the penalties and fines can be enormous.
Be safe. Understand the law.
And as always, feel free to contact us for any help on this issue.
“Children are a gift from the Lord; babies are a reward. Children who are born to a young man are like arrows in the hand of a warrior. Happy is the man who has his bag full of arrows.” Psalm 127:3
God certainly sees the benefits of children. The picture above shows my three grandchildren with my youngest son Michael at a family function this summer.
The two youngest are Ephraim and Benaiah (being held on the left and right of the picture) who are both less than one year old and Carli who is three. She’s not too happy in this picture but most of the time she’s a beautifully happy young girl.
Children and grandchildren are a joy to be around. They give us joy, happiness and fill us with the promise of new life. Our grandchildren are often in our home. My wife and I recently had the pleasure of caring for Benaiah last week while his parents were away on business. They are truly a joy to see them grow and develop.
Our tax code recognizes this also. It is filled with benefits for those who are raising children.
In 2015 the personal exemption will rise to $4,000. This is the most common deduction people think of regarding children. But there are many, many other advantages.
The single largest credit available for taxpayers with children is the Earned Income Credit. That credit is going to rise in 2015 to a whopping $6,242. The credit is based upon “earned income”. It is given on a sliding scale. I do have some clients that receive the maximum credit.
The tax code rewards parents with a $1,000 child credit until the child reaches age 17.
But there are dependent care credits, adoption credits, Additional child tax credits, education credits and a host of deductions and credits for monies that are allocated to their education and development.
Of course, all of these exemptions deductions and credits are subject to a variety of caps and cuts based on your level of income.
One of the most powerful tax savings devices I encourage my business clients to consider is a custodial account.
The law recognizes that until the age of 18 (or 21 in many states) children are minors. While they do file their own tax return (with some exceptions) they do not legally control their monies.
A business owner has the right to hire their children and pay them a fair wage for the work they do. That parent can then deposit those earnings into a custodial account and serve as the trustee for those funds.
There are several advantages to this. It is a wonderful income splitting device. The amounts deposited to the accounts can be used by the parent for the benefit of their child. However, the earnings are taxed at the child’s rate of taxation-which is usually lower than the parents’ rate.
Children do hold a special place in our hearts and lives. And, the tax code gives us many, many benefits for the care and upbringing of those children.
They are very powerful tools in an overall tax reduction strategy-IF you know how to use them.
Call the Eldridge Group today for an analysis of just how your children can be a powerful tax savings tool.
Progressive, Flat and Fair Taxes.
The self-evident truth of the Declaration of Independence was that “…all men are created equal…”
Today that noble concept has been twisted to mean equality of outcomes or equality in fact.
Equality as embraced by our founding documents is actually equality under the law; that is, the concept that all of us will be treated equally by our government in the writing and enforcing of our laws. We utter the phrase “…and justice for all…” in the pledge to the flag. That concept has been lost in a sea of victimization and entitlement. Our tax code reflects that lack of “justice for all”.
Our current 70,000 page tax code is a model of “progressivity”; of liberal ideology. It is based on the premise that those who make more should pay more.
It has not given us equality. It has given special privilege to those who are politically connected. It has been very unfair those who make modest incomes because by taking that “marginal dollar” away through taxation it has prevented savings and investment in anything other than government directed sources.
The Fair Tax
So some smart people have come up with a national sales tax called the “Fair Tax”. Here is their website: https://fairtax.org/about/how-fairtax-works.
Their basic argument is that this is fair because everyone is treated equally. Really?
We are very familiar with sales taxes because we pay them every day where we live when we purchase goods and maybe services (Hawaii for example). Sales taxes are the number one revenue generator for state governments.
The taxes would be extremely unfair in my opinion. It would be very susceptible to manipulation by special interests just like current systems. Some purchases are exempt, some are not. Some purchases have a higher rate than other purchases (such as lodging taxes).
The tax would also be extremely regressive; meaning that the percentage of income taken from below the median income earnings would be much higher than those with high incomes. As a result, the poor and middle class will again not be able to save and invest because their “marginal” dollars are being sent to the IRS.
In my opinion, the “Fair Tax” is not equal treatment under the law.
The Flat Tax
The Flat tax is also about equal treatment under the law and fairness. It proposes to tax everyone at the same rate. It was proposed by Steve Forbes in 1996 when he ran for President. Rand Paul has recently proposed a flat tax similar to Steve Forbes but with a lower rate and the elimination of the FICA tax for individuals.
In my opinion, simply on the basis of equality and fairness, this flat tax is much better than sales taxes or the progressive system of income taxes we currently have. The Flat Tax provides equality because it is not the amount of the tax that is equal but the rate of the tax that is equal. As a percentage of income the high income earner and the low income earner would pay the same rate.
The Flat Tax is of course subject to manipulation by special interests. As long as we have a big government and that government is involved in so many areas of our daily lives, there will be special interests. There is a special interest for every area of involvement of our government in the lives and activities of individuals and businesses.
Will the Flat Tax put me, a CPA out of business? Will it eliminate the IRS?
Absolutely not. As long as there are taxes there will be an IRS. And as long as there is an IRS you will need me.
Happy New Year to all! May 2015 be a very blessed and prosperous year for you and your family.
We just came through a season that is known for giving. The people of the United States are the most giving people in all the world. In fact, according to the National Philanthropic Trust, charitable giving in 2013 increased by 4.4% over 2012 and reached the astonishing level of $335.17 Billion dollars.
We are a giving people. The same study showed that 95.4% of households give an average of $2,974 per year.
We give because we believe in charity. The word charity originally meant love. Giving shows the love you have toward your fellow man, toward those who are less fortunate. It means that you believe in causes that are bigger than yourself. It means that you believe that you should give back a portion of what God has blessed you with.
Studies have shown that those who give generously are able to give even more generously. It’s one of those true contradictions in life like “…the greatest among you shall be your servant….” Matthew 23:11.
This same study mentioned above shows that over the last 40 years charitable giving has risen every year except 2007-2009 and then has risen each year since.
One of the tools that we encourage our clients to consider is giving through their own private foundation. According to the study, foundation giving increased 5.7% to $50.28 billion.
The wealthiest of the world have used private foundations to protect the wealth that they have reserved for charitable giving for years. Indeed, the largest private foundation in the world is the Bill Melinda Gates Private Foundation. That foundation is worth over $37 billion. By contrast, the Lilly Endowment, a very popular foundation in Indiana, is worth “only” $7.7 billion. (See foundationcenter.org).
The Eldridge Group has been very successful at forming private foundations for our clients despite the “bad press” that the IRS has been getting regarding non-profit organizations. (The problematic non-profits have primarily been 501(c) (4) organizations, NOT 501(c) (3) organizations which do have a different purpose). It has taken a bit longer but we have not had any declined.
Running your own private foundation has many advantages but additional responsibilities also. If you have significant year income or wealth, you should consider the many advantages that these organizations can provide for you.
We can teach you how to set-up and run these organizations.
Be responsible for the income you earn and the wealth you generate. Be a giving person. Be wise with your giving and maximize the ability you have to support the causes that you endorse strongly. Consider a private foundation.
Give us a call.