Oct 14

Costly Shopping Spree

You may have heard that the United States is steep in debt over $14 trillion. Over $5 trillion borrowed from Social Security and Medicare and the rest borrowed from around the world including China. How did we let this happen? How did America fall asleep during this rapid expansion of national debt and the most costly shopping spree in U.S. history?

First, let’s look at Social Security and Medicare withholdings in the 90s under President Clinton. Lots of folks were working during those boom times, creating a huge surplus in Social Security. The surplus was used by Clinton to fund his day-to-day government for many years. Due to a quirk in government accounting (or lack thereof) that allows for this “transfer” of funds from Social Security to Treasury to occur quietly off the books, these borrowed funds did not get counted in the national debt. So although many of us credit Clinton with running a surplus in the 90s, it was the money borrowed from Social Security that funded these so-called surpluses.

The rest of the debt unfortunately comes from wars. The Civil War, World War I, World War II, Korea and Vietnam were funded with lots of borrowed money. During peace time, debt is then reduced until the next war hits. This has been the normal cycle for more than 100 years. More wars and less peace mean more borrowing. This makes sense until we have to deal with 9/11, the War on Terror, the creation of Homeland Security, Iraq and Afghanistan and limited involvement in Libya; it is just too much at once. The economic meltdown a few years ago along with all the government-funded bailouts didn’t help either. Not surprising, the national debt skyrocketed continuing through the entire decade from 2000 to present. What’s the takeaway? Again, we can’t have it all. I know this is easier said than done. Try asking your spouse to cut spending and see how many points that gets you.

But we have to start somewhere. Let everyone we voted in last election know we don’t need any tax increases to raise more revenue so the government can spend more money and get further into debt. Let our elected officials know that, except for law enforcement, defense and other essential services, we need less government, fewer government buildings and agencies, less spending and less government – period. Although there are essential government services on the shopping list each year, the shopping sprees of the past are simply unacceptable as we enter a very frugal decade.
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In conclusion, perhaps our government needs to shut down during the hot Washington summer months each year to cool off government spending and save the American people a few trillion, give or take a few billion. Perhaps all nonessential folks in Congress, meaning everyone, could work in the summer repairing roads, bridges and the rest of the infrastructure in their home districts. Then, when they come back in September, they will know what real work is all about.

H. Christopher Moss
– Letter to the Editor of the Charleston Mercury
published September 22, 2011

Dec 22

Gift Tax Exemption a Joyous Surprise

What a Christmas present surprise to the American taxpayer we have before us:  President Obama has signed the massive tax cut bill HR 4853 known as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. (Tax Relief Act) On December 15, the Senate passed the compromise package with an 81–19 vote, with large majorities of both Democrats and Republicans supporting it. Close to midnight on December 16, the House passed the bill 277–148.   Not only were all the Bush tax cuts extended for two years, but there were a host of other sweeteners and add ons that will be the subject of much analysis in the next few weeks.  I would like to just focus on one significant add-on: Estate and Gift taxes are now unified for the first time since 2001, and the gift tax exemption is substantially higher.  This one add-on will present a significant shift in tax planning opportunity for many taxpayers.  In fact, taxpayers may be advised by their tax advisors to hold off on any last-minute 2010 gifts in favor of 2011.  Here’s why:

Tax free gifts have generally always been allowed to anyone we want as long as the gift was $13,000 in 2009 or $26,000 for a married couple.  Anything over that was subject to tax when accumulated gifts totaled an amount over the Gift tax exemption, which had been $1,000,000 for singles and $2,000,000 for a married couple since 2002.  The Tax Relief Act increases the gift tax exemption on January 1, 2011 to $5,000,000 for singles and $10,000,000 for a married couple.  This is huge!  Parents whose major asset is the family home, farm or a family business worth $10,000,000 or less can now gift over the bulk of their assets to the kids tax-free.  Gifts made under the Tax Relief Act from January 1, 2011 to December 31, 2012 will be permanently effective even if in 2013 the gift exemption goes back down to $1,000,000.  Did I say this is huge folks?  Concerned about giving up to $10,000,000 to your kids within the next two years, particularly if they are teenagers?   Call your attorney and ask if setting up an irrevocable trust is the right way to keep the funds protected until the kids reach a responsible age.  Did I mention that this would be all tax-free?

The free edge of P1 segment should not be any issue in using this levitra sale medication to treat their sexual problems. A lot cialis super active of people grow Tongkat Ali on their farms but include very little quantity in the products. This medication http://downtownsault.org/restaurant-week/ sildenafil price should be used with extreme caution by patients with predisposition to priapism (erection that won’t go away, even after several hours. If you have low cialis cost special info iron in the blood (anemia), nerve pain, fever, trouble sleeping, diabetes, erectile dysfunction or hangover symptoms, ginseng rootscan be the best remedy for these conditions. But what about those folks who already gave substantial taxable gifts in 2010 ?   You may want to ask your CPA if it is possible to file an amended gift tax return, particularly if the gift was not fully funded yet.  For example, let’s say you created a family limited partnership in 2010 with the sole intent of divesting your estate assets to your children through a series of transactions to take place in the next few years in order to transfer wealth from you and your spouse to your children without incurring substantial gift tax.  I believe for the vast majority of American taxpayers the family limited partnership may be obsolete for at least the next two years due to the Gift Tax Exemption Surprise.   A very merry Christmas indeed to all taxpayers.

 

Aug 12

Tax vs. Direct Government Subsidies

While the debate goes on whether to pump more tax dollars in the Cash for Clunkers program, it may be time to step back a bit and ask how the current administration’s program differs from past government hand out programs. The Cash for Clunkers programs gives cash back to a special targeted group of Americans.  In the past the United States Tax Code has generally been the major vehicle through which subsidies were doled out to special interest groups.

Many of remember the investment tax credit, accelerated depreciation, education credit, child care credits as well as hundreds of deductions to help folks who owned homes, gave to charity, and started small businesses.  Politically, the United State has been reluctant to give direct subsidies to special targeted groups except through the tax code.  For example, the child tax credit is an indirect subsidy to those Americans who have children.  But past President’s could not just hand out money to folks who had children; that would have been considered discriminatory against those who were childless, or who were unable to have children.   Perhaps the use of the tax code for indirect subsidies has masked the discriminatory nature of helping a targeted class of American taxpayer.
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However, the tax Code subsidiary is different from a direct government subsidiary in another important way, in that the out-of-pocket cash to the US Government is not as immediate as it is with a direct subsidy.  For example if the Clunker Cash was disguised as a tax credit, the taxpayer would not only have to purchase the car, but also file a tax return, and more importantly make sufficient income to take advantage of the tax credit on his or her tax return.  The US Treasury might have to part with revenue on the tax credit, but make it up with other income the taxpayer earned during that year.  With a direct government subsidy such as the current Cash for Clunkers, government funds are given immediately to Americans who simply have old cars.  By separating the subsidy from the tax return, the treasury is out the money with no guarantee of a return on investment on the taxpayer’s income tax return.   It is my view that elected officials may want to reflect on whether or not such programs are in the best interest of all the taxpayers and whether such direct subsidies should be used again in the future.

Mar 19

Fight Federal Income Taxes by Change, not Refusing to Pay

Every year around tax time, I hear a few successful and intelligent taxpayers come explain to me that income tax is illegal.  When I ask them how this is possible, I am told that the 16th Amendment was never properly ratified.  It turns out these taxpayers had attended some seminar or read some book that promotes the 16th Amendment as a fraud on the American people.  So I thought it might be useful for us to look a little closer at the various arguments against paying income tax that are out there.   

The Benson case: William J Benson stopped paying income tax claiming the 16th Amendment was never properly ratified. He argued that state amendments were not of the exact language of the circulated congressional amendment, making the amendment fail to achieve the three-forths required majority of states. Benson even wrote a book in 1985 titled “The Law That Never Was: The fraud of the 16th Amendment and personal income tax.” History in fact shows that in 1913, Mr. Knox, Secretary of State, proclaimed that the amendment had been ratified by the necessary three-quarters of the states. Mr. Knox was clearly aware of the grammatical and minor changes in text between the various state and congressional amendments.

In United States v. Thomas, 617 F.Supp.F237,87-2 U.S. Tax Cas.(CCH) paragr. 9562 (W.D.Mich. 1985) the Court said “The Solicitor of the Department of State drew up a list of the errors in the instruments and taking into account both the triviality of the deviations and the treatment of earlier amendments that had experienced more substantial problems [and] advised the Secretary that he was authorized to declare the amendment adopted. The Secretary did so.”

Benson was sentenced to four years in prison in 1995 but is still very actively promoting his beliefs. Trust me folks, every court out there has ultimately rejected Benson’s arguments.

The Cheek case: John L. Cheek stopped paying income tax claiming the tax laws were unconstitutionally enforced and the he did not have to pay tax. He ultimately lost all his civil claims and was forced to pay the tax. However, he was also criminally charged as well. He claimed he acted without the willfulness required for criminal conviction.

He was able to get his case to the Supreme Court on an issue of criminal intent. Cheek v. United States, 498 U.S. 192 (1991). He had a partial victory on a technicality in that the Court ruled that even though an honest belief may be irrational, if intent was not there, there could be no criminal liability. The Supreme Court remanded the case to the court below so new jury instructions could be given. Cheek’s victory was short lived, in that on remand, he was sentenced to a year in prison in 1991.

There are countless other tax protester arguments other than the 16th Amendment argument. One of my favorite arguments is to place all your assets and income in a foreign trust in a tax free haven with a foreigner in control of all the assets and income. Since only American citizens and resident aliens are taxed on worldwide income, the income deposited into this foreign trust would accumulate tax free.

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All of the promoters of these tax protest arguments and others like them are either serving time in Federal prison or have just been released. Taxes owed were all assessed and either paid or are due. No group or individual has ever successfully challenged the United States to collect income tax form its citizens.

Let’s start with our own local and state elected officials to move forward to legally change the system and to shut down these tax protestors for good. Remember if the tax advice is too good to be true, it isn’t.

(H Christopher Moss of Mount Pleasant , a CPA and attorney, is President and CEO of Infinite Partnerships Inc.)
AS PUBLISHED BY THE POST AND COURIER March 19, 2008

Jun 22

Tax Cuts Help All

I believe all Americans of all political parties benefit from low investment tax rates. I would also like to point out that the most significant Bush income tax cuts were not from 2001, but were from the 2003 Jobs and Growth Tax Relief Reconciliation Act (JGTRRA), which President Bush signed into law on May 27, 2003.

In my view, the 2003 reduction of capital gains and qualified dividends to 15 percent should be made permanent because it affects all of us. Dividends received from most of your investments, including perhaps your own small family business, are now taxed at a historically very low rate of 15 percent. In addition, each time we sell real estate or other capital assets, whether for business or personal use, we only pay tax at 15 percent on the gain. This encourages us to take financial risks and grow our personal and business wealth without the threat of high taxes, which helps each community grow and prosper, including Charleston.

The main argument against making these tax cuts permanent is that it will make our already record-setting deficit even higher. Many would point out, however, that raising taxes only gives more money to the government and gives our elected representatives no incentive to cut the costs of running the country and balance the budget.

Regardless of your party affiliation, it would be important to recognize how important low capital gain and dividend rates are to the health of the nation.

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