Advertisements

The Future of Tax & Legal – Embracing Change with Confidence

Businessperson Calculating Invoice

Tax and legal professionals today face increasing complexity, risk, and ambiguity as technology, regulatory and business transformation converge. It’s easy to feel overwhelmed by the change and the infinite number of strategic options. But embracing this change is manageable with the right tools and the right partner.

Deloitte is helping clients navigate this increasingly complex, digital world by leveraging the combined strength of our technology capabilities from our Consulting and Tax & Legal practices, and by placing a continued emphasis on technology investment and skills development to prepare talent to meet the evolving needs of the business.

Harnessing Technology to Adapt to Change

Businesses in all sectors and regions are experiencing the opportunities and challenges that come with the immense changes of the Fourth Industrial Revolution. Even the most traditional business areas, such as tax and legal, are not immune. Technologies are disrupting business as we know it and in response, global tax and legal systems must transform and adapt to keep pace with these new business concepts and models. And organizations need to invest in their tax and legal departments to ensure they can operate confidently and effectively while minimizing risk.

Tax departments are tasked with executing flawlessly at a fundamental level: Ensure compliance, know the regulations and their implications, be precise, account for all the data, stay ahead of risk, and predict outcomes. And they are asked to do it all in an environment of exponential increases in data, added responsibility within the business, and new mandates from regulators.

As a result, tax professionals are moving to automate and apply analytics to help account for more data and to achieve greater precision. Technologies such as robotic process automation (RPA), natural language processing (NLP) and artificial intelligence (AI) give tax professionals the ability to work with all the information available in massive data sets.

Related image

To not only see what has happened, but to more confidently predict what will happen. To be insightful and focus on implications and outcomes rather than being consumed by ensuring the accuracy of the numbers and on-time filing. And to do all this while meeting the increased transparency demands of regulators – who themselves are likely to use robotics and AI to collect and analyze companies’ tax data.

Likewise, technology has become a critical tool to help legal departments support rapidly evolving demands from the business and manage regulatory change.

Using Deloitte Tax and Legal professionals as an example, when the European Union’s General Data Protection Regulation (“GDPR”) came into force in 2018 along with the UK Data Protection Act, Deloitte UK’s Tax group engaged Deloitte Legal to assess the scope, and remediate where necessary, approximately 45,000 engagement contracts.

In the past this would have required a very lengthy manual assessment which would have been inefficient and prone to error as contract negotiations are typically buried in emails and hard to track. Instead Deloitte exercised a combined approach using dTrax, a proprietary artificial intelligence-enabled contract lifecycle management technology, with the support of skilled Deloitte Legal resources to simplify, automate, and streamline the contracting process.

The tool allowed Deloitte Tax client relationship owners to provide details about their engagements, which were then assessed by dTrax to determine whether the corresponding engagement contract required remediation. Where remediation was required, dTrax automatically generated a letter varying the Data Protection clause, which was sent directly to the client.

If negotiation of the Data Protection clause wording was required, Deloitte Legal resources were able to negotiate by reference to playbooks built into dTrax. This approach drove consistency while keeping contract negotiations managed and recorded within a single platform.

By combining technology with skilled resources, Deloitte UK’s Tax team was able to alter the business model, allowing for up to a 50 percent reduction in the number of required legal resources, a 40 percent reduction in the delivery turnaround time per variation letter, and an up to 60 percent reduction in the overall costs. Ultimately, the team gained greater visibility and insights into their contract terms and conditions, which increased their overall compliance and reduced risk.

Fueling Talent with Technology

While digital transformation is a tech-enabled shift, it requires a collaborative effort to change mindsets and embrace and advance transformation. A successful digital transformation demands a cultural change with a focus on continuous learning and embedding technology into the way we work.

Tax professionals have traditionally been tied up with compliance and the technical side of tax. Yet in this digital age, a robot can now do the data checking and digital tools can classify line items. So, today’s, and tomorrow’s, tax professional needs to understand the processes behind tax, be able to code, interpret data and make decisions. They have the opportunity to provide far more valuable and strategic input to their organizations, but they must be more adaptable to work with technology to enhance and reinforce their advice.

From the legal perspective, lawyers will need to have a broader range of skills to be ready for the legal landscape of tomorrow. Tomorrow’s digital lawyers will need to think and operate in a different way and they will need significant management, business strategy, technology and consulting capabilities to be able to deliver real value to clients. Adoption of the right tools, such as AI and data analytics, will enable legal teams to maximize efficiencies across multiple functions, standardize and adopt best practices, and help gather insights to support better decision making for the business.

Inspiring Confidence Today and Into Tomorrow with Technology

Deloitte has invested heavily in technology and we are accelerating our efforts in order to help both our own professionals and clients stay ahead. With more than 200 technology solutions in place, including robotics, AI, and machine learning capabilities, Deloitte Tax & Legal is helping clients manage compliance, bridge gaps between countries’ accounting principles, and manage research and development incentives claims. As we navigate the Fourth Industrial Revolution, having a tech-savvy foundation in our people and our processes will help set ourselves and our clients up for success and ensure our ability to work confidently now and far into the future.

Based in London, Philip Mills is the Global Tax & Legal leader at Deloitte. Prior to this, he led the Global Business Tax practice for two years and the UK Business Tax practice for seven years, amongst other roles. Philip also leads the Global Tax & Legal Executive and is a member of the Global Executive Committee. He has a Physics Bachelor of Science degree from Liverpool University, is a member of the Institute of Chartered Accountants in England and Wales and is a member of the Institute of Tax.

For nearly 20 years, Philip focused on M&A tax, particularly on Private Equity, Real Estate and Hedge Funds. He has worked on some of the more significant, large and complex European transactions in recent years as well as supporting the Fund advisers. Most recently, he took on advisory roles to some of Deloitte’s largest multinational corporate clients.

Source: The Future of Tax & Legal – Embracing Change with Confidence

https://i1.wp.com/onlinemarketingscoops.com/wp-content/uploads/2020/01/Google_ads.gif?resize=740%2C964&ssl=1

Advertisements

Do Retirees Hate Annuities & Insurance Companies?

Investors have been buying fixed annuities for a long time now for the added security they can offer. The current best interest rate on a five-year fixed annuity is 3.9% compared to the current 2% rate of a bank CD.

Fixed index annuities are paying income streams with a guaranteed rate as high as 6% over much longer time periods. These annuities earn their interest from participation with stock or bond market indexes. When the market is up, you earn a percentage of the gain in what is known as a participation rate strategy.

An example might be if the chosen index were up 10% for the year and your contract paid 70% participation, you would earn 7%. If the index selected should go down 10% for the year, you are guaranteed not to have any market losses ever. There are additional strategies for index annuities to pay interest, and each strategy has its limitations compared to the actual index earnings. As always, make sure you read the fine print.

In addition to guarantees and income provided by these products, there are additional tax strategies used to increase your net return. It’s one thing to earn interest, but it’s another to keep it.

The tax system is a huge factor in retirement planning. For example, if your account is an IRA and you elect to have a guaranteed income rider on the index annuity contract, you and your spouse will have income guaranteed as long as either is alive. At the time both of you have passed, the company would pay any remaining balance to your beneficiaries.

But what if you live a long time taking a guaranteed increased income but the stock market indexes do not go up during that period? The insurance company still has to pay you your increased income even if your account runs out of money. In this example, the year your account runs out of money, you convert the remaining small amount to a Roth IRA. All future income would be considered Roth IRA income with a “zero-tax liability.” You do need to make sure you have a Roth IRA currently in order to do this strategy.

One of the least-known tax strategies is to take regular non-qualified money and purchase a fixed index annuity where the income paid out each month is, depending on your age, approximately 70% tax-free. There is a limit on how much you can put into a Roth IRA to obtain tax-free income, but this strategy has no limit. An example might be that you deposit $1 million into this type of account.

Immediately, if you were drawing $100,000 income each year under this strategy, you would only have to pay taxes on about $30,000 with the remaining $70,000 being tax-free. Who doesn’t like the sound of that?

The final piece of the puzzle is longevity planning. What if you outlive your savings? There is a form of life insurance that will advance the death benefit to pay for home health care, nursing home care, and even offer advanced lump sums of money if you are diagnosed with a critical condition. Also, under current law, the advance is all tax-free.

What about the pensions that go away when the breadwinner dies? What about the potential of decreased Social Security income? The life insurance mentioned above can also provide enough money to replace the lost pension and Social Security dollars providing for your soulmate’s standard of living in the manner in which you want them to have. Your final love letter, so to speak.

People are living longer, which has driven down the cost of this type of insurance, making it possible to provide for you and your spouse. Critical care, chronic care, and loss of your income can all be addressed with one properly structured insurance contract.

Insurance company products can offer stability that most retirees want and need. With proper planning, you can reduce or even eliminate taxes and have retirement income you can enjoy for the rest of your life. You won’t have to worry about running out of income or keeping up with inflation.

So back to the beginning question – do retirees hate annuities and insurance companies? I believe it is safe to say at the rate these products are being purchased by retirees, they actually love insurance companies. How things have changed from the past generations.

This content was brought to you by Impact PartnersVoice. Insurance and annuities offered through Donald W. Owens, OH Insurance License #16525. DT# 1023595-1220.

Since 1980, Don Owens has strived to offer the highest standard of integrity assisting clients in retirement growth and income strategies. His mission is to offer straightforward advice to his clients in and transitioning into retirement to build a financial plan that emphasizes safety and security in the most tax-efficient manner. Don has developed his business by nurturing and maintaining close relationships with each of his clients. He understands how important it is for you to be able to trust your financial professional and is guided by his clients’ objectives and future needs. Don has earned the designations of ChFC, CLU, LUTCF, and FSCP. He is also proud to have received an A rating from the Better Business Bureau. Don and his wife, Kim, have three children, four grandchildren, and two dogs. Family is important in the Owens household, and they enjoy spending time with their large extended family, swimming, barbecuing, and creating memories and a lot of meals together

Source: Do Retirees Hate Annuities & Insurance Companies?

Affording Health Insurance Before Medicare

Man Loses Home After Failing To Pay $8.41 In Property Taxes

$8.41. That was how much 83-year-old Uri Rafaeli, a retired engineer, in Michigan underpaid his property taxes by in 2014. That was all it took for him to lose his house.

Rafaeli bought a 1,500-square-foot Southfield home in 2011. He paid $60,000 for the property, and the deed was recorded by the Oakland County Register of Deeds on January 6, 2012. He put additional money into the home, too, as he intended to use the rental income from the property to fund his retirement.

Rafaeli believed that he was paying his property taxes on time and in full, but in 2012, he received notice that he had underpaid his 2011 tax bill by $496. He paid up in 2013 but made a mistake figuring the interest (interest also accrued while his check was in the mail): He was short by $8.41.

In response, Oakland County seized his property and put it up for sale. The home netted just $24,500 at auction; according to Zillow, the property is now estimated to be worth nearly $130,000.

The County kept the overage from the auction: $24,215 in profits, or 8,496% of the actual tax, penalties, and interest due (the debt had grown to $285 with penalties, interest, and fees).

It was all legal.

Under Act 123 of 1999, Michigan allows its county treasurers a great deal of authority to handle unpaid taxes, including rushing the tax foreclosure process. Under the Act, the property is considered delinquent if taxes aren’t paid in the previous year. If the outstanding taxes, fees and penalties remain unpaid after two years, the County can foreclose on the property; that’s much more quickly than before, when the average timeframe to move a foreclosure was five to seven years. Shortly after foreclosure, the former owner loses the right to buy back the property, and the County becomes the owner. At sale, the funds belong to the County. There’s no requirement to refund any of the proceeds to the owner even if the overage far exceeds the amount owed.

Rafaeli—and his lawyers—think that’s wrong. They took the matter to the U.S. District Court for the Eastern District of Michigan. The court found that Rafaeli—and a similarly situated plaintiff—suffered “a manifest injustice that should find redress under the law” but dismissed the claim for lack of jurisdiction.

Rafaeli tried again. He didn’t argue that he didn’t owe tax, penalties, interest and fees. But he did object to the County taking the excess. The County argued that Rafaeli had no rights to the equity because the General Property Tax Act does not expressly protect it. And that’s the reason that Rafaeli keeps losing: The courts have sympathy for his plight but have found that the law does not prevent the County from keeping it.

He’s not alone. Tens of thousands of properties in Detroit have been subject to the same kind of treatment. Many of those who owe taxes understand that they have a debt, but they don’t necessarily understand how to navigate the process or what the failure to pay on time can mean. As with Rafaeli, even something as simple as miscalculating the interest due, can have serious consequences.

Today, Rafaeli is represented by the Pacific Legal Foundation (PLF). PLF was founded in 1973 by members of then-governor Ronald Reagan’s staff as the first public interest law firm dedicated to the principles of individual rights and limited government. PLF is taking the case to the Michigan Supreme Court, arguing that keeping the funds is an unjust taking. If he wins, Rafaeli—and other landowners in similar situations—may be entitled to compensation.

According to PLF, the entire process, as it is happening now, is nothing more than government-sanctioned theft. “Predatory government foreclosure particularly threatens the elderly, sick, and people in economic distress,” PLF argued on its website. “It could happen to your grandparents. It could happen to you.”

Follow me on Twitter or LinkedIn. Check out my website.

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: Man Loses Home After Failing To Pay $8.41 In Property Taxes

64 subscribers
A short video explaining your property taxes and the role of the Assessor’s Office.

IRS Announces New Per Diem Rates For Taxpayers Who Travel For Business

Are you wondering about those updated per diem rates? The new per-diem numbers are now out, effective October 1, 2019. These numbers are to be used for per-diem allowances paid to any employee on or after October 1, 2019, for travel away from home. The new rates include those for the transportation industry; the rate for the incidental expenses; and the rates and list of high-cost localities for purposes of the high-low substantiation method.

I know, that sounds complicated. But it’s intended to keep things simple. The Internal Revenue Service (IRS) allows the use of per diem (that’s Latin meaning “for each day” – remember, lawyers love Latin) rates to make reimbursements easier for employers and employees. Per diem rates are a fixed amount paid to employees to compensate for lodging, meals, and incidental expenses incurred when traveling on business rather than using actual expenses.

Here’s how it typically works: A per diem rate can be used by an employer to reimburse employees for combined lodging and meal costs, or meal costs alone. Per diem payments are not considered part of the employee’s wages for tax purposes so long as the payments are equal to, or less than the federal per diem rate, and the employee provides an expense report. If the employee doesn’t provide a complete expense report, the payments will be taxable to the employee. Similarly, any payments which are more than the per diem rate will also be taxable.

Today In: Money

The reimbursement piece is essential. Remember that for the 2019 tax year, unreimbursed job expenses are not deductible. The Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed job expenses and miscellaneous itemized deductions subject to the 2% floor for the tax years 2018 through 2025. Those expenses include unreimbursed travel and mileage.

That also means that the business standard mileage rate (you’ll find the 2019 rate here) cannot be used to deduct unreimbursed employee travel expenses for the 2018 through 2025 tax years. The IRS has clarified, however, that members of a reserve component of the Armed Forces of the United States, state or local government officials paid on a fee basis, and certain performing artists may still deduct unreimbursed employee travel expenses as an adjustment to income on the front page of the 1040; in other words, those folks can continue to use the business standard mileage rate. For details, you can check out Notice 2018-42 (downloads as a PDF).

What about self-employed taxpayers? The good news is that they can still deduct business-related expenses. However, the per diem rates aren’t as useful for self-employed taxpayers because they can only use the per diem rates for meal costs. Realistically, that means that self-employed taxpayers must continue to keep excellent records and use exact numbers.

As of October 1, 2019, the special meals and incidental expenses (M&IE) per diem rates for taxpayers in the transportation industry are $66 for any locality of travel in the continental United States and $71 for any locality of travel outside the continental United States; those rates are slightly more than they were last year. The per diem rate for meals & incidental expenses (M&IE) includes all meals, room service, laundry, dry cleaning, and pressing of clothing, and fees and tips for persons who provide services, such as food servers and luggage handlers.

The rate for incidental expenses only is $5 per day, no matter the location. Incidental expenses include fees and tips paid at lodging, including porters and hotel staff. It’s worth noting that transportation between where you sleep or work and where you eat, as well as the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings, are no longer included in incidental expenses. If you want to snag a break for those, and you use the per diem rates, you may request that your employer reimburse you.

That’s good advice across the board: If you previously deducted those unreimbursed job expenses and can no longer do so under the TCJA, ask your employer about potential reimbursements. Companies might not have considered the need for specific reimbursement policies before the new tax law, but would likely not want to lose a good employee over a few dollars – especially when those dollars are important to the employee.

Of course, since the cost of travel can vary depending on where – and when – you’re going, there are special rates for certain destinations. For purposes of the high-low substantiation method, the per diem rates are $297 for travel to any high-cost locality and $200 for travel to any other locality within the continental United States. The meals & incidental expenses only per diem for travel to those destinations is $71 for travel to a high-cost locality and $60 for travel to any other locality within the continental United States.

You can find the list of high-cost localities for all or part of the calendar year – including the applicable rates – in the most recent IRS notice. As you can imagine, high cost of living areas like San Francisco, Boston, New York City, and the District of Columbia continue to make the list. There are, however, a few noteworthy changes, including:

  • The following localities have been added to the list of high-cost localities: Mill Valley/San Rafael/Novato, California; Crested Butte/Gunnison, Colorado; Petoskey, Michigan; Big Sky/West Yellowstone/Gardiner, Montana; Carlsbad, New Mexico; Nashville, Tennessee; and Midland/Odessa, Texas.
  • The following localities have been removed from the list of high-cost localities: Los Angeles, California; San Diego, California; Duluth, Minnesota; Moab, Utah; and Virginia Beach, Virginia.
  • The following localities have changed the portion of the year in which they are high-cost localities (meaning that seasonal rates apply): Napa, California; Santa Barbara, California; Denver, Colorado; Vail, Colorado; Washington D.C., District of Columbia; Key West, Florida; Jekyll Island/Brunswick, Georgia; New York City, New York; Portland, Oregon; Philadelphia, Pennsylvania; Pecos, Texas; Vancouver, Washington; and Jackson/Pinedale, Wyoming.

You can find the entire high-cost localities list, together with other per diem information, in Notice 2019-55 (downloads as a PDF). To find the federal government per diem rates by locality name or zip code, head over to the General Services Administration (GSA) website.

Follow me on Twitter or LinkedIn. Check out my website.

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: IRS Announces New Per Diem Rates For Taxpayers Who Travel For Business

839 subscribers
Per Diem is one of the largest tax deductions available to owner-operator truck drivers. Effective October 1, 2018, the daily rate was increased. In this video, we discuss Per Diem and how it will affect owner-operators.

TurboTax Glitch Led To $216 Million Tax Bill For Thrift Store Worker

Nobody likes getting a tax bill in the mail. It’s especially concerning when your tax bill is a bit higher than you anticipated. But what happens when it’s hundreds of millions of dollars more than you were expecting? Just ask Donna Smith from Aurora, Colorado. Smith, a part-time worker at a local thrift store, got quite the surprise when she opened a tax bill from the Colorado Department of Revenue to find that the state claimed she owed $216,399,508 in taxes.

Smith, who makes about $10 an hour, couldn’t understand the tax bill. To put the amount in perspective, it’s nearly a quarter of the City of Aurora’s entire budget for the year (report downloads as a PDF).

Smith’s returns are self-prepared, of sorts. Her mother, Diana Valencia, prepared Smith’s tax return for 2018 and couldn’t understand what happened. She told 9News that she went back to check the return, saying, “I mean, I thought, ‘Wow, was that an error on my part?’”

Today In: Money

It was an error – but not on Valencia’s part. Valencia used TurboTax to prepare the return. According to the Colorado Department of Revenue (DOR), the TurboTax software made an error tied to Smith’s federal taxable income.

A spokesperson from TurboTax confirmed the error, saying, “For a small number of TurboTax online customers that filed their taxes between June 13-16, there was an issue that caused select fields on their tax return to be incorrectly transmitted during e-file. The issue was quickly fixed and we have been working directly with affected Colorado taxpayers and the Colorado State DOR to help resolve.” If you were affected by the billing error and aren’t currently working to resolve the matter, you should contact the Department of Revenue at (303) 866-4622 to reach a citizen’s advocate.

The Colorado DOR pegged the number of affected taxpayers at 44. That doesn’t mean, however, that a few dozen taxpayers received multi-million dollar tax bills. According to Daniel Carr, Taxation Communications Manager at the Colorado DOR, that number represents taxpayers who encountered the same glitch using TurboTax software during a three-day window in June of this year. “What the taxpayer entered into TurboTax was correct,” Carr said, explaining that “an error in the TurboTax transfer reported incorrect amounts to the State of Colorado.”

The bills went out, explains the DOR, because “[o]n our end it was simply data in data out and we could only process what we were given by TurboTax. We cannot determine the accurate amounts based on the information provided.”

Once the errors were discovered, however, the DOR worked with affected taxpayers. “We have reached out to all of the taxpayers affected and are helping them resolve this issue,” says Carr.

That doesn’t mean that the taxpayers don’t have work to do. According to Carr, “Taxpayers, in this case, who kept a copy of what they submitted are able to send us that copy and we will correct the error. Otherwise, they would have to amend their return.”

(For more information on how to file an amended federal income tax return, click here.)

Mistakes happen all of the time – just maybe not quite this big. No matter the size of the return, taxpayers can protect themselves, Carr advises, by always keeping a copy of filed returns. And if the bill seems out of place? “Contact the Department of Revenue immediately to have it resolved.”

Don’t ignore the problem. That’s good advice for all taxpayers, no matter whether the bill is federal, state or local. In most cases – even when the bill is hundreds of millions of dollars – errors are totally fixable. But don’t wait and hope that it goes away: it’s important to reach out to the respective tax authorities to clear up any problems as soon as possible.

(For more on how to fix a mistake on your return, click here.)

Follow me on Twitter or LinkedIn. Check out my website.

Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future, I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I earned an LL.M Taxation. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. At one such audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax. Just like that, Taxgirl® was born.

Source: TurboTax Glitch Led To $216 Million Tax Bill For Thrift Store Worker

I just finished reviewing TurboTax 2018-2019, and I’m excited about how easy it is to use. 💵But, if you don’t qualify for free file (and it’s limited), they are one of the most expensive options for filing your taxes this year. Check out the full article with all the links here: https://thecollegeinvestor.com/20778/… Here’s what we’re going to talk about in this video: ▶︎ Look at the pricing of TurboTax Online 2018 – 2019 ▶︎ See how easy it is to file your taxes and why I like it so much ▶︎ The limitations of TurboTax Free Edition ▶︎ What upsells to avoid and what upsells you should consider Be sure to subscribe: http://www.youtube.com/subscription_c… ★☆★Resources Mentioned in this video:★☆★ 💵TurboTax 2018 – 2019: http://go.thecollegeinvestor.com/Turb… 💵TurboTax Amazon Deal: https://amzn.to/2EctYxn 💵H&R Block Online: http://go.thecollegeinvestor.com/HRBlock ★☆★ Want More From The College Investor? ★☆★ 💻 Check out my blog here: https://thecollegeinvestor.com/ Connect with me on Instagram: https://www.instagram.com/thecollegei…

Sell Stocks And Pay Off Your Mortgage

It’s hard to borrow yourself rich—especially when you can’t deduct the interest.

A friend from Connecticut tells me she and her husband were recently inspired to sell some securities and pay off their mortgage. She figures the market is due for a correction.

A clever move, I say, and not just because stocks are richly priced. Mortgages, even though rates are at near-record lows, are expensive. And there’s a tax problem.

The tax angle relates to what went into effect last year—something Trump called a tax cut, although it raised federal taxes for a lot of people in high-tax states like Connecticut. For our purposes what matters is that the law made mortgages undesirable.

Used to be that people would say, “I took out a mortgage because I need the deduction.” That doesn’t work so well now. The new law has a standard deduction of $24,400 for a couple, and you have to clear this hurdle before the first dollar of benefit comes from a deduction for mortgage interest.

Today In: Money

Most middle-class homeowners aren’t itemizing at all. For them, the aftertax cost of a 4% mortgage is 4%.

If you are still itemizing, your interest deduction may not be worth much. You are probably claiming the maximum $10,000 in state and local taxes. (If you aren’t, you are living in an igloo in a state without an income tax.) That means the first $14,400 of other deductions don’t do anything for you.

A couple with $2,400 of charitable donations and $15,000 of interest is in effect able to deduct only a fifth of the interest. The aftertax cost of the mortgage depends on these borrowers’ tax bracket, but will probably be in the neighborhood of 3.7%.

Before 2018, your finances were very different. You no doubt topped the standard deduction (which was lower then) with just the write-off for state and local taxes (which didn’t have that $10,000 cap). So all of your mortgage interest went to work in reducing federal taxes. You could do a little arbitrage.

If your aftertax cost of a 4% mortgage was 2.7%, an investment yielding 3% aftertax yielded a positive spread. You’d hold onto that investment instead of paying off the mortgage. It was quite rational to sit on a pile of 3% tax-exempt bonds while taking out a 4% mortgage to buy a house.

Now that sort of scheme doesn’t make sense. The aftertax yield on muni bonds is way less than than the aftertax cost of a mortgage. This is true of corporate bonds, too: Their aftertax return, net of defaults, is less than the cost of a mortgage today.

So, if you have excess loot outside your retirement accounts, and it’s invested in bonds, you’d come out ahead paying off a mortgage.

What about stocks? Should you, like my friend, sell stocks held in a taxable account in order to pay off your mortgage? This is a trickier question. If your stocks are highly appreciated, perhaps not. You could hang onto them and avoid the capital gains.

If they are not appreciated, or if you have a windfall and you’re deciding whether the stock market or your mortgage is the place to use it, the trade-off changes.

Stock prices are, by historical measures, quite high in relation to their earnings. The market’s long-term future return is correspondingly less.

Financiers

In the short term, stocks are entirely unpredictable. Neither my friend, nor I, nor Warren Buffett can tell you whether there will be a crash next year to vindicate her decision or another upward lurch that will make her regretful.

For the long term, though, you can use earnings yields to arrive at an expected return. I explain the arithmetic here. A realistic expectation for real annual returns is between 3% and 4%. Add in inflation and you’ve got a nominal return not much more than 5%.

From that, subtract taxes. You’ve got a base federal tax of 15% or 20% on dividends and long-term gains. There’s also the Obamacare 3.8% if your income is above $250,000. You have state income taxes, no longer mitigated by a federal deduction for them (because you’ll probably be well above the $10,000 limit no matter what).

Add it all up, and you can look forward to an aftertax return from stocks of maybe 4%. That is, your expected return could be only a smidgen above the aftertax cost of your mortgage. Worth the risk? Not for my friend. Not for me.

What if I’m wrong about the market, and it’s destined to deliver 10%? Or what if you are a risk lover, willing to dive in with only a meager expected gain? Mortgages are still a bad way to finance your gamble.

You don’t have to borrow money at a non-tax-deductible 4%. I can tell you where to get a loan at slightly more than 2%, with the interest fully deductible.

The place to go is the Chicago Mercantile Exchange. Instead of buying stocks, buy stock index futures.

When you go long an E-mini S&P 500 future you are, in effect, buying $150,000 of stock with borrowed money. You don’t see the debt; it’s built into the price of the future. The reason the loan is cheap is that futures prices are determined by arbitrageurs (like giant banks) that can borrow cheaply. The reason the interest is in effect deductible is that it comes out of the taxable gains you report on the futures.

Futures contracts are taxed somewhat more heavily than stocks. Their rate is a blend of ordinary rates and the favorable rates on dividends and long-term gains. Also, futures players don’t have the option of deferring capital gains. Even so, owning futures is way cheaper than owing money to a bank while putting money into stocks.

One caveat for people planning to burn a mortgage: Stay liquid. Don’t use up cash you may need during a stretch of unemployment.

But if you have a lot of assets in a taxable account, it’s time to rethink your mortgage. Debt is no longer a bargain.

I aim to help you save on taxes and money management costs. I graduated from Harvard in 1973, have been a journalist for 44 years, and was editor of Forbes magazine from 1999 to 2010. Tax law is a frequent subject in my articles. I have been an Enrolled Agent since 1979. Email me at williambaldwinfinance — at — gmail — dot — com.

Source: Sell Stocks And Pay Off Your Mortgage

In many situations, paying off your mortgage early could potentially be costing you hundreds of thousands of dollars…and I’ll run the numbers to show this based off real world examples. Enjoy! Add me on Snapchat/Instagram: GPStephan Join the private Real Estate Facebook Group: https://www.facebook.com/groups/there… The Real Estate Agent Academy: Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $120 million in sales: https://goo.gl/UFpi4c This is one of those subjects that’s not intuitive for most people – you would think that paying off your mortgage early would be a really good idea. But this isn’t always the case. The reason people think this way is because they haven’t really looked at the true cost of ownership, what their money is really worth, and they only focus on the end number. On our $400,000 loan example, your payment is $1956 per month and you wind up paying $304,000 in interest over 30 years. But there are three very important considerations here: 1. The first is the mortgage interest tax write off – this is what makes real estate extremely appealing, and why keeping a mortgage helps long term.For the average person in a 23% tax bracket, with a 4.2% interest rate, after you factor in your write offs, your ACTUAL cost of interest is only 3.23%. 2. The second factor is Inflation. Because the bank is holding the entire loan over 30 years and you get to pay bits and pieces of it over time, it should be safe to assume a 2% AVERAGE inflation rate over 30 years. This means that even though you’re paying a NET interest rate now of 3.23%, if we subtract 2% annually for inflation, this means that you’re really only effectively paying 1.23% in interest after tax write offs and inflation. 3. Finally, the third factor is opportunity cost. Can you make MORE than a 1.23% return ANYWHERE ELSE adjusted for inflation? The answer is pretty much always yes. This means that if you INVEST your money instead of paying down the mortgage, mathematically over the term of the loan you’d come out ahead than if you just paid off the loan early. So with these points above, we’ll take two scenarios. In scenario one, you have a 30-year, $400,000 loan at a 4.2% interest rate that you pay off in half the time – you increase your payments from $1956 to $3000 per month in order to make this happen. Then once the loan is paid off, you invest the full amount in the stock market for another 15 years. After an additional 15 years, that works out to be just over $1,000,000. So you now have a paid of house plus a million dollars. But what happens if you kept the 30-year mortgage and instead of you paying it off in half the time by increasing your payments to $3000/mo, you just invested the extra $1050 per month instead? Because you didn’t pay down your mortgage early and you invested that extra money instead, at a 7.5% return in an SP500 index fund…at the end of 30 years, you’ll have a paid off home PLUS $1,433,000.. This means that over 30 years, that’s a difference of $433,000…by NOT paying down your mortgage early, and instead investing the difference. Although keep in mind, if you have a really high interest rate on your loan, above about 6%, it’s probably better to pay it off. This is because the upside to investing gets smaller and smaller the higher your mortgage interest rate is. But the biggest advantage of paying it off early is that with the above example, we assume the person will actually invest the money rather than pay off their loan early. In order for this calculation to work, the person needs to be disciplined enough to actually invest the different and not spend it. But for anyone with the discipline to actually stick with an investing plan instead of paying down the mortgage, statistically and mathematically, you can often make more money paying it off slowly than paying it off early. For business inquiries or one-on-one real estate investing/real estate agent consulting or coaching, you can reach me at GrahamStephanBusiness@gmail.com Suggested reading: The Millionaire Real Estate Agent: http://goo.gl/TPTSVC Your money or your life: https://goo.gl/fmlaJR The Millionaire Real Estate Investor: https://goo.gl/sV9xtl How to Win Friends and Influence People: https://goo.gl/1f3Meq Think and grow rich: https://goo.gl/SSKlyu Awaken the giant within: https://goo.gl/niIAEI The Book on Rental Property Investing: https://goo.gl/qtJqFq Favorite Credit Cards: Chase Sapphire Reserve – https://goo.gl/sT68EC American Express Platinum – https://goo.gl/C9n4e3

2019 Tax Refund Chart Can Help You Guess When You’ll Receive Your Money


If anyone tells you that they have the 2019 tax filing season all figured, they’re lying. By all accounts, the upcoming tax season is going to be tricky. Despite a shoestring staff due to the shutdownnew tax forms and new tax rules, the 2019 tax season is still set to open on January 28, 2019. The Internal Revenue Service (IRS) claims that the season will operate as close to normal as possible—including issuing tax refunds. So when are those tax refunds coming……….
Source: https://www.forbes.com/sites/kellyphillipserb/2019/01/21/2019-tax-refund-chart-can-help-you-guess-when-youll-receive-your-money/#6522e9684ba2

Is There a Credit Card Rewards Tax? – Gabriel Wood

1.jpg

When you trade in your credit card rewards for a heap of cash back or travel credit, your moment of elation may be interrupted by a sobering thought: are these rewards taxed? After all, the IRS taxes investment income, cryptocurrency and casino winnings, so it would make sense for there to be some kind of credit card rewards tax. Unfortunately, it’s an issue that takes some digging to get to the bottom of, and even then, the answer isn’t completely clear-cut. To learn about the law surrounding taxes on credit card rewards and find out if you need to fret about giving the IRS its due, keep reading.

The law isn’t clear

This would be an easy question to answer if there was a law that definitively stated whether credit card rewards are subject to taxation, but there currently isn’t one. The IRS may push for such a law soon, since credit card intro bonuses are very generous right now and it may want to start regulating them, but that’s just speculation. Instead, all the legal precedent we have to go on is one IRS announcement and one tax court decision. The announcement, made in 2002, says that frequent flyer miles and other promotional items that you receive as the result of business travel, but that you use for personal purposes, do not produce a tax liability. However, it also says that exception doesn’t apply to travel or other promotional benefits that you convert into cash, or to compensation that is paid in the form of promotional benefits. Since many credit card issuers let you trade their rewards for statement credit or cash, lawyers could interpret that to mean there is a credit card rewards tax.

The court’s decision in the 2014 case Shankar and Trivedi v. Commissioner of Internal Revenue was similar. In the case, couple Parimal Shankar and Malti Trivedi failed to report to the IRS airline tickets that they had purchased with rewards points gained from opening a bank account. The couple argued that the dollar value of the rewards points shouldn’t count as income, since they received it as part of a promotional offer, but the U.S. Tax Court ruled against them.

Tax experts lean toward no

Even though both of the precedents mentioned above make your chances of avoiding a rewards tax look grim, some experts say credit card rewards are largely tax-free. Because you have to spend money in order to earn credit card rewards, whether you’re receiving cash back on your purchases or meeting the spending requirement for an intro bonus, apparently the IRS views those rewards as more of a rebate or discount rather than taxable income. Additionally, even if the IRS taxed credit card rewards, you wouldn’t have to worry about reporting that money unless it met or exceeded $600 per credit card issuer. That’s because $600 is the minimum amount of money you can report on a 1099 form for miscellaneous income, so any amount below that is safe from taxation.

While your credit card rewards are probably safe, the same can’t be said for other financial rewards. In 2012, Citi (a NextAdvisor advertiser) shocked a lot of customers by mailing 1099 forms out to anyone who took advantage of a promotional offer that gave new banking customers a large amount of frequent flyer miles. Citi determined the value of the miles given exceeded $600 per customer, so everyone who received the miles had to pay taxes on them. What’s the takeaway from this? If a reward (including a credit card reward) only requires you to sign up for an account and doesn’t entail spending any money, the IRS is much more likely to view that as a gift, payment or prize and tax it if it’s worth at least $600.

In conclusion, if you’re crazy about earning credit card cash back or points, you shouldn’t fear running into a rewards tax. If for some reason you do receive a 1099 form in the mail from your credit card issuer, though, make sure you factor it into your taxes to stay square with the IRS. For more answers to any credit card question you can think of and then some, check out our credit cards blog.

 

 

Donate us if you like

 

IRS Announces 2019 Tax Rates, Standard Deduction Amounts And More – Kelly Phillips Erb

1.jpg

The Internal Revenue Service (IRS) has announced the annual inflation adjustments for more than 60 tax provisions for the year 2019, including tax rate schedules, tax tables and cost-of-living adjustments. These are the numbers for the tax year 2019 beginning January 1, 2019. They are not the numbers and tables that you’ll use to prepare your 2018 tax returns in 2019 (you’ll find them here). These are the numbers that you’ll use to prepare your 2019 tax returns in 2020.If you aren’t expecting any significant changes in 2019, you can use the updated numbers to estimate your liability. If you plan to make more money or change your circumstances (i.e., get married, start a business, have a baby), consider adjusting your withholding or tweaking your estimated tax payments………….

Read more: https://www.forbes.com/sites/kellyphillipserb/2018/11/15/irs-announces-2019-tax-rates-standard-deduction-amounts-and-more/#c14542820814

 

 

 

 

Your kindly Donations would be so effective in order to fulfill our future research and endeavors – Thank you

$1.6 Billion Lottery Winner Will Face Huge Taxes, Possible Lawsuits – Robert W. Wood

1.jpg

With no lotto winner, the combined Mega Millions and Powerball jackpots stand at an astounding $2.2 billion. Yes, billions. The Mega Millions jackpot has reached $1.6 billion while the Powerball pot is up to $620 million. These world record astonishing numbers seem even more likely to brew big potential liabilities. Of course, everyone should know that taxes on winning tickets are an unavoidable downside. But who wouldn’t want this tax problem? Even after taxes, there’s lots left over, right? First there is the cash v. annuity question, but taxes will come out of either one. Lottery winnings are taxed……

Read more: https://www.forbes.com/sites/robertwood/2018/10/23/1-6-billion-mega-millions-lottery-winner-faces-huge-taxes-possible-lawsuits/#2ce009408411

 

 

 

Your kindly Donations would be so effective in order to fulfill our future research and endeavors – Thank you

 

 

%d bloggers like this:
Skip to toolbar