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Charity giving and taxes.

jantrevor

Many authors are confusing the tax impact of giving to charities. If you donate money or property to a registered charity (a non-profit organization)it is a deduction from income not a deduction from your taxes. The net impact is you have lower income and so pay less in taxes. It is not a one for one reduction in your taxes.

Switch Blayde

@jantrevor

And only if you itemize (vs taking the standard deduction).

Replies:   docholladay
docholladay

@Switch Blayde

And the only way to tell for sure which way gives the best return is to fill out both forms. Compare the two forms then submit the right tax form.

Dominions Son

@jantrevor

The vast majority of the general population is confused in this way about the impact of all tax deductions (even the standard deduction on the short form works this way).

What make you think that authors are particularly confused on this issue.

Replies:   helmut_meukel
helmut_meukel

@Dominions Son

The vast majority of the general population is confused in this way about the impact of all tax deductions (even the standard deduction on the short form works this way).

What make you think that authors are particularly confused on this issue.


Hmmm,
after I read your answer, I re-read the original post.
I think you misunderstood his complaint.

If the story is set in the real world and an author who writes – as part of the story plot – about a tax deduction as a one for one of the donation (same amount) obviously hasn't researched the facts.

If the story setting is in a fictional world then it's ok, he can create a taxation system where you can deduct the donation directly from your taxes. I can even envision a system where you get money back if your donation is higher than your total tax would be without the donation.

BTW, the german taxation laws recognizes donations to political parties where your tax is reduced by 50% of the donation regardless of your personal tax rate, but it's limited to €825 deduction.

HM.

Replies:   Dominions Son
Dominions Son

@helmut_meukel

I think you misunderstood his complaint.


The op in no way says or implies that the complaint is about the treatment of tax deductions in a story.

I would suggest that you are the one who misunderstood his complaint.

Replies:   helmut_meukel
helmut_meukel

@Dominions Son

The op in no way says or implies that the complaint is about the treatment of tax deductions in a story.

Did you overlook where he posted?
This Forum is named Story Discussion and Feedback. To me this is implication enough.

HM.

Replies:   Dominions Son
Dominions Son

@helmut_meukel

To me this is implication enough.


To me it is not, without mentioning a specific story or author. Without mentioning a story, there is no story discussion/feedback and is was just posted in the wrong section of the forum.

Replies:   REP
Ernest Bywater

@jantrevor

That depends on the tax laws of country the story is set in, and the time period, because they have changed at times and between countries. But, in general, most authors don't earn enough to be fully aware of how it works.

jimpierce08
Updated:

It is quite common for authors to say their character "needed" the deduction for a charitable contribution because otherwise their tax bill would be too high. Speaking only for the US, and only for my tax-paying years (more than 50), it has never been possible to wind up with more money as the result of a legitimate contribution. You will pay less tax, but the amount less will itself be less than the deduction.

An example that comes to mind is Banadin in Richard Jackson 9th grade where he gives his income from American Bandstand to the Leukemia Society as "a good move according to Dad's tax accountant." Giving to charity may be a good move, but the implication is that it is good because it saves on taxes.

The exception to the above is when someone donates something worth $100 and gets a receipt for $700 from the charity - something that has happened many times in the past when the donation was "art" or a vehicle, where value is subjective. In that case, you will indeed save on taxes, especially if you avoid audit.

StarFleet Carl

@jimpierce08

It is quite common for authors to say their character "needed" the deduction for a charitable contribution because otherwise their tax bill would be too high. Speaking only for the US, and only for my tax-paying years (more than 50), it has never been possible to wind up with more money as the result of a legitimate contribution. You will pay less tax, but the amount less will itself be less than the deduction.


Well, not exactly. What CAN end up happening is that your contribution can reduce your adjusted gross income such that it puts you into a lower tax bracket.

Keep in mind that we're not talking about those of us who make $80,000 per year and donate $500 - $1,000 to charity. Where it truly makes a difference is for someone who is in the higher tax brackets for adjusted gross income such that they're already part of the 1% who pay 40% of all federal income taxes.

For example, if the taxes for an income of $500,000 - $999,999 is 35%, but the the taxes for an income of greater than $1 million are 40%. Under that plan, you earned $1,050,000 - so with no charitable deduction, your tax would be $420,000 - leaving you $630,000. If you donate $60,000 - your income is $990,00, your taxes are $346,500, leaving you $643,500. Thus, you gave away $60,000, but actually ended up making an extra $13,500.

I know I've simplified the brackets and incomes, but this is exactly the cluster-fuck that the American tax system is. For several years I managed an income tax office (not H&R Block) and I was amazed at the people who effectively made nothing but would get thousands of dollars in refunds - which weren't really refunds, but basically gifts disguised as Earned Income Credits.

And that's another reason I support the simplified tax forms. Here's the standard deduction - did you make more than a certain amount? No? Okay, fine, you get everything you paid in back and that's IT. You did make more than that? Okay, by how much? Your taxes are 10% / 20% / 30% and that's it. No messing around - and most people do their income taxes on a postcard.

Obviously small (or large) business owners would probably have things a little more complex, but not much. (I'll get off my soapbox, but before I go - I don't mind paying taxes. Taxes are what we pay for civilization - the shared things that a government must provide. What I DO mind is paying taxes that are wasted by that government on things that they don't NEED to provide.)

Geek of Ages

@StarFleet Carl

income taxes on a postcard


I'd rather not let everyone who handles my mail be able to read my social security number and how much I make, please.

Replies:   Joe Long
jimpierce08
Updated:

@StarFleet Carl

For example, if the taxes for an income of $500,000 - $999,999 is 35%, but the the taxes for an income of greater than $1 million are 40%. Under that plan, you earned $1,050,000 - so with no charitable deduction, your tax would be $420,000 - leaving you $630,000. If you donate $60,000 - your income is $990,00, your taxes are $346,500, leaving you $643,500. Thus, you gave away $60,000, but actually ended up making an extra $13,500.


Sorry, the US system has never worked that way. Ignoring that your brackets are way off, the way it actually works is that if the tax on up to 999,999 is 35% and over is 40%, and you earned 1,050,000, you would pay 35% of 999,999 and 40% of 50,001. That is how it works, so revise your figures and note the "extra $13,500" evaporates. Actual tax brackets for a married American today (2017) are (you add these as required):

10% of the first $18,650

15% of the amount from $18,650 to $75,900

25% of the amount from $75,900 to $153,100

28% of the amount from $153,100 to $233,350

33% of the amount from $233,350 to $416,700

35% of the amount from $416,700 to $470,700

39.60% of the amount over $470,700

Now the challenge: Use those real brackets to produce a scenario where you can give to charity any amount of real money and end up with more as a result of a lower tax bill.

I am a business owner with decent income, and I make charitable contributions that I consider reasonable. I'm not unhappy that Uncle Sam is paying part of what I give, and it does allow me to give more than I probably would otherwise, but I'm not trying to fool myself into thinking I wind up ahead on the transaction personally.

Replies:   Dominions Son
Dominions Son
Updated:

@jimpierce08


Use those real brackets to produce a scenario where you can give to charity any amount of real money and end up with more as a result of a lower tax bill.


Even using realistic brackets, any charitable contribution that is just enough to push you into the next lower bracket will likely have a significant impact. It will take time to run the numbers though.

ETA:

I've run the numbers. It's not quite 1 for one.

Generally, except for the two lowest brackets, if you donate just enough to push you down 1 bracket, your tax savings will be your donation amount * the higher tax bracket's marginal rate.

So if you are just into the highest tax bracket your tax savings will be just under 40% of the donation amount.

Replies:   jimpierce08
Switch Blayde

@jimpierce08

it has never been possible to wind up with more money as the result of a legitimate contribution.


Actually, there is.

You buy a stock for $10. It's now worth $100.

If you sell it, you pay taxes on $90 (per share).

But if you donate it to charity, you get to write-off $100 from your income even though you only paid $10. And you don't pay the taxes on the $90 gain.

Replies:   jimpierce08  PotomacBob
REP
Updated:

@Dominions Son


and is was just posted in the wrong section of the forum.


I understood what he said, but couldn't figure out why he was saying it. Frankly, I can't think of any section of the forum that is suitable for his post.

jimpierce08

@Switch Blayde

And you don't pay the taxes on the $90 gain

And you also don't have the $90 gain in your pocket, so it is disingenuous to say you came out ahead.

Replies:   Switch Blayde
jimpierce08

@Dominions Son

So if you are just into the highest tax bracket your tax savings will be just under 40% of the donation amount.

Exactly. Your charitable donation will always come at least 60% out of your pocket, with no more than 40% from Uncle Sam.

Highest tax rates were a lot higher in the past, which is often forgotten by those who think our current taxes are the highest ever. Highest rate in 1988 was 50%, and 70% in years from 1965-1981. In 1964 it was 77%, and before that it was 91%. Back in 1945 it was 94%!

When Banadin's character gave $50K in 1959 he was really only giving $4500 after the tax implications. Still didn't come out ahead, but he didn't make money on the transaction and didn't lose much.

Switch Blayde

@jimpierce08

And you also don't have the $90 gain in your pocket, so it is disingenuous to say you came out ahead.


But you could come out ahead. It's not the $90. It's the write-off. You wrote off $100 instead of $10. So you wrote off more than it cost you out of pocket. Not having to pay taxes on the $90 gain is just a plus.

We're talking U.S. taxes here. Each situation depends on many factors, like tax brackets, type of income, is there a market for that $100 stock, etc.

Replies:   Dominions Son  Joe Long
Dominions Son

@Switch Blayde

But you could come out ahead.


The tax savings from the $100 write off and not paying the capital gains tax is still going to be less than what the capital gain would have been if you just sold the stock.

Replies:   Switch Blayde
Crumbly Writer

@StarFleet Carl

And that's another reason I support the simplified tax forms.

Unfortunately, the current 'tax reform' isn't reform at all, it's a 'Tax reduction' for multi-millionaries (like Trump), where they're trying to figure out how to recoup the losses from the typical low-wage employees to pay for it.

I doubt anyone would criticize an honest tax reform, but typically, that's NOT what we're discussing when one party suggest 'tax reform' but intends something that's anything but. NO ONE, either Democrat or Republican, will support the current 'tax reform' being considered, as it benefits NO ONE who's currently paying taxes (other than corporations, who simply claim the income from other nations other than the U.S.)!

Switch Blayde
Updated:

@Dominions Son


The tax savings from the $100 write off and not paying the capital gains tax is still going to be less than what the capital gain would have been if you just sold the stock.


As I said, there are many variables. I'm sure it would make sense for someone.

What if it wasn't a stock, but something else that appreciated in value but is not liquid? Sure, your portfolio on paper would represent that gain, but if you can't sell it then it's not cash in your pocket. The tax savings would be cash in your pocket.

ETA: In fact, I did that with a piece of art. When I was young, I bought an AP (artist proof) woodcut from a friend's brother's friend who was a starving artist in NYC. He now teaches art in Columbia and is in museums around the world. But there wasn't a market for the woodcut so I donated it to the museum here and wrote off the value based on new stuff from the artist I found on the web in the NY galleries.

awnlee jawking

@Switch Blayde

There are examples in the UK tax system where, above a certain value, the whole lot is taxed at the higher rate. In such instances it's worth giving some away of hiding some so that the whole lot is taxed at the lower rate. I believe stamp duty when buying a property malfunctions in that way.

AJ

Dominions Son

@Switch Blayde

As I said, there are many variables. I'm sure it would make sense for someone.


Saying it might make sense for someone is not the same as saying they get a net economic gain out of doing it. They won't.

Replies:   Switch Blayde
Switch Blayde

@Dominions Son

Saying it might make sense for someone is not the same as saying they get a net economic gain out of doing it. They won't.


I did with the art I donated.

Replies:   Dominions Son
Dominions Son

@Switch Blayde

Only by not counting the appreciation of the asset in your net worth before the donation and calculating the tax refund gain from the purchase price.

This is a method that would not be supported by any economist or accountant.

You should have been counting the full current market value of the art as part of your net worth before the donation and your net worth declined from the donation by more than the increase in your tax refund/decrease in your net tax liability.

Replies:   jimpierce08
jimpierce08

@Dominions Son

I mentioned earlier that donations of items with subjective worth have long been abused. I do not know if Switch Blayde was audited in the year he made his art donation. Basically you can get away with claiming all sorts of deductions if you are not audited. If you are audited, there are a bunch of hurdles to overcome if the art had appreciated significantly since purchase. See IRS publication 561 to see how the IRS approaches this problem. Most people are never audited. Despite my income level, I've only been audited twice and both times were situations where I asked for the audit because I felt/knew the IRS was wrong in assessing me with increased tax and penalties, and the audits were limited to the specific question (I was upheld on both).

PotomacBob

@StarFleet Carl

Changing the tax brackets will not prevent Congress (if its the Feds) from spending money in a way in which you do not approve. I have no doubt that if you were making all the decisions about how money was spent, a lot of us would disagree with that. Same thing if I made the decisions, even more would disagree. But SOMEBODY has to make the decisions. And a lot of people will disagree.

PotomacBob

@Switch Blayde

Art is an exception. With art, if you buy it for, say $10. And you keep it for 5 years and it's now worth $3,000. You get to deduct from your gross income the $3,000. Thus reducing your taxes, even if you're in the 10 percent bracket, by more than you paid for the art in the first place. So - all you poor authors out there - all you need to do is give some really expensive art to a big museum, and you can really reduce your taxes.

Joe Long

@StarFleet Carl

Keep in mind that we're not talking about those of us who make $80,000 per year and donate $500 - $1,000 to charity. Where it truly makes a difference is for someone who is in the higher tax brackets for adjusted gross income such that they're already part of the 1% who pay 40% of all federal income taxes.


One doesn't have to be in the top 1% to find themselves crossing the threshold from 15% to 28% marginal rates.

Here's something that has happened to me - my day job, after deductions & exemptions, put my taxable income just below the point where I'd be paying 28% on any additional income.

Then I added in the income from my home consulting business. That money got the 28% rate, plus I had to pay 7.5% as the employer's portion of both Social Security and Medicare, and at the higher income child tax credits and some deductions didn't get full value.

In the end, the additional tax divided by the additional income was 48%. Makes you almost not want to try.

Replies:   Dominions Son
Joe Long

@Geek of Ages

I'd rather not let everyone who handles my mail be able to read my social security number and how much I make, please.


Taxes at the cash register (while leaving necessities such as food, clothing & medicine untaxed). They don't need to know your name or id, how much you make, if your male or female, married or single.

Joe Long

@Switch Blayde

But you could come out ahead. It's not the $90. It's the write-off. You wrote off $100 instead of $10. So you wrote off more than it cost you out of pocket. Not having to pay taxes on the $90 gain is just a plus.


My goal is not to minimize the amount of taxes paid, but rather to maximize the amount of money left in my pocket.

If I pay off my house I'll lose my mortgage deduction. Keeping the mortgage means I pay $1000 a month to avoid giving $150 to the government. If I pay off the mortgage I'm ahead $850.

Replies:   Switch Blayde  Not_a_ID
Geek of Ages
Updated:

@Joe Long

Sales taxes like that are significantly different from income taxes, which is what was being talking about.

Switch Blayde
Updated:

@Joe Long


If I pay off the mortgage I'm ahead $850.


Of course you need to take into account opportunity costs. How much can you make on that $850 if you invest it? Actually, it's the money you used to pay off the mortgage.

Especially if you're on the latter part of your mortgage rather than the beginning. In the beginning, your $1,000 payment is mostly interest. Toward the end, that same $1,000 is mostly principle. Of course, toward the end, since it's not much interest, you don't get the tax write-off.

The bottom line is — It all depends.

There are so many variables to take into account.

Replies:   Joe Long
Dominions Son

@Joe Long

One doesn't have to be in the top 1% to find themselves crossing the threshold from 15% to 28% marginal rates.


True, but crossing the threshold from 15% to 28%, you only recover 28 percent of your donation in taxes.

Also, in order to itemize, your total itemized deductions have to exceed the standard deduction.

In 2016, the standard deduction for an individual filer was $6,300.

Assuming you have no other deductions, how many people making less than $80K can afford to donate $6k in one year.

Replies:   Joe Long
Dominions Son

@Joe Long

while leaving necessities such as food, clothing & medicine untaxed


Doesn't happen in a lot of jurisdictions. Most tax clothing and at least OCT medicine and a lot of jurisdictions that exclude food don't exclude all food.

Wisconsin for instance taxes processed foods that are ready to eat at the point of sale.

So a bag of ready to eat popcorn is taxable, but a box of microwave popcorn is not.

Replies:   Joe Long
Joe Long

@Switch Blayde

The bottom line is — It all depends.

There are so many variables to take into account.


That's true. At times in the past I've looked at numbers to see when is right to pay off the mortgage, according to the principles you stated.

Joe Long

@Dominions Son

Wisconsin for instance taxes processed foods that are ready to eat at the point of sale.

So a bag of ready to eat popcorn is taxable, but a box of microwave popcorn is not.


This is similar to Pennsylvania, I said 'groceries' which does not include ready to eat or restaurant food. Anything you cook at home is tax free. Although the sales tax is 6%, I pay an effective rate of less than 1% because more than 80% of my purchases are tax free.

Replies:   Dominions Son
Dominions Son

@Joe Long

I said 'groceries'


No you didn't, I quoted what you said.

while leaving necessities such as food, clothing & medicine untaxed


On top of that, at least in Wisconsin, groceries does include read to eat packaged foods such as potato chips, popcorn and cookies.

Replies:   Joe Long
Joe Long

@Dominions Son

No you didn't, I quoted what you said.


Sorry - brain said one thing, fingers typed another.

StarFleet Carl

@Joe Long

(while leaving necessities such as food, clothing & medicine untaxed)


Don't move to Oklahoma.

Groceries - ALL of them, not just processed foods - are taxed. That was a heck of a shock for me moving here. That $2 gallon of milk is $2.09 with state sales tax, $2.17 by the time you add in the local taxes on top.

So is clothing - which is why they make a big deal of the sales tax forgiveness weekend just prior to school starting, where for one weekend you can buy a certain amount of clothes without paying sales tax.

Replies:   AmigaClone
AmigaClone

@StarFleet Carl

So is clothing - which is why they make a big deal of the sales tax forgiveness weekend just prior to school starting, where for one weekend you can buy a certain amount of clothes without paying sales tax.


If I'm not mistaken most "Sales tax forgiveness weekend" for clothes held in various states in the United States have no limit on quantity of clothes purchased.

There are some things that might be counted as "clothing" that might not qualify in a particular state and each each individual item would need to be less than a certain amount ($100 in 2017 for Oklahoma). For instance, if someone were to get 3 pairs of shoes, one $80, one $95 and one $100.01, the customer would not pay the sales tax on the first two pairs but would pay it on the last one.

Replies:   Capt. Zapp  Joe Long
Capt. Zapp

@AmigaClone

..."Sales tax forgiveness weekend" for clothes held in various states in the United States have no limit on quantity of clothes purchased.


They have a similar weekend here, but it supposedly includes all school supplies as well. Someone did some checking though and found that things which many classes require students to have (calculators, printer paper, flash drives, etc) were NOT included, but a wedding dress was!

Joe Long

@AmigaClone

For instance, if someone were to get 3 pairs of shoes, one $80, one $95 and one $100.01, the customer would not pay the sales tax on the first two pairs but would pay it on the last one.


In Pennsylvania, the first $100 of any item of clothing is exempt. If your wife buys a $120 dress, $20 is then taxed at 6%, for a total of $121.20

JohnBobMead

Hm, learn something new everyday. I've lived in Oregon, Arizona, Illinois, and now Washington State, and so far as i know, none of them have such a weekend. Of course, Oregon doesn't have sales tax to begin with. In Arizona, Illinois, and Washington State, completed meals at restaurant or restaurant equivalents are taxed (including home delivery of pizza), food you buy and take home to cook isn't; I can't remember if Papa Murphy's is taxed or not, I've only purchased from them once outside of Oregon. I didn't have any prescription medications in Arizona or Illinois, but in Washington State prescription meds aren't taxed, while OTC meds are. Every place I've lived with sales tax taxed clothing. Washington State is the only state I've lived in without a state income tax, while Oregon is the only one that didn't have sales tax.

Growing up in Oregon, the most traumatic thing about moving to another state was not dealing with sales tax, but learning to pump my own gas at completely self serve gas pumps; I don't know what the official reason is for it being illegal to pump your own gas in Oregon, but it's clearly an employment protection measure. Almost every trip we took outside of Oregon, dad would forget to put the gas cap back on after filling the tank; we bought a lot of gas caps before I took over pumping the gas, and I never actually dealt with getting the pump turned on and paying for it until I worked in Chicago, and since I didn't have a car in Chicago, it was only a couple of times that I ended up being the one doing it. So for a bit after moving to Tacoma, I looked like a right idiot given how long it took me to get through the process of authorizing payment with my credit card and selecting which type of gas I wanted.

Replies:   Dominions Son
Dominions Son

@JohnBobMead

In Arizona, Illinois, and Washington State, completed meals at restaurant or restaurant equivalents are taxed (including home delivery of pizza), food you buy and take home to cook isn't;


Illinois like Wisconsin taxes ready to eat packaged groceries such as candy, soda, and other snack foods.

Illinois like many states also allows local sales taxes, for which the rules for what is and is not taxed may differ from the state sales tax.

Replies:   JohnBobMead  Joe Long
JohnBobMead

@Dominions Son

candy, soda, and other snack foods.


Ah. I never buy those, so didn't notice.

Joe Long

@Dominions Son

Illinois like many states also allows local sales taxes, for which the rules for what is and is not taxed may differ from the state sales tax.


Virginia has local sales taxes and meals taxes on prepared food (so at fast food places, depending on locality, you may pay up to 13% tax). Va also has personal property tax on vehicles. Pennsylvania has neither. County governments, which do very little other than run the courts, run on property (real estate) taxes. Local govt's have property taxes, per capita taxes and occupational privilege taxes (generally low, like $10 or $20 a year) and income taxes (flat rate, no exemptions, generally 1% if at all.) The school districts are independent, with their own elected boards and their own property taxes - so I pay three different taxes on my house.

Replies:   Dominions Son
Dominions Son
Updated:

@Joe Long

In Wisconsin, where I live, there is a state sales tax (5%) and the state allows counties (and only counties) to add another 0.5% (no more, no less, 0.5% or nothing). There is also a special three county 0.1% sales tax to help pay for the Milwaukee Brewer's current stadium created by the state.

Wisconsin vehicle registration fees are not value based, so it's not considered a property tax.

Counties, Municipalities, and school districts all charge property taxes, each setting it's own rate, but collection is handled only by the municipalities, so you only actually get one property tax bill (all three individual rates are specified on the bill along with your consolidated rate specified in $ / $1000 value).

Municipalities are not allowed their own income taxes, which some states do allow.

Replies:   Joe Long
Joe Long

@Dominions Son

Wisconsin vehicle registration fees are not value based, so it's not considered a property tax.


Virginia's personal property tax can be quite steep, with some people paying more than a thousand a year for a car. Also, it's not withheld or escrowed, so one has to write a check at tax time.

My three property taxes are bundled with my mortgage payment and the mortgage company makes the actual payments. If one owns their house outright, it's like Virginia's personal property tax - you have to write three checks every year.

Pa's local property taxes are an effort to de-emphasize real estate taxes, which rentors don't pay and which can be hard on senior citizens who may be property rich but cash poor. Our state lottery was established 40 years ago to subsidize senior citizen property tax bills.

Joe Long

@Dominions Son

Assuming you have no other deductions, how many people making less than $80K can afford to donate $6k in one year.


The biggest is mortgage interest, which for me is about $10k a year, but was double that when I was in Virginia. For charitable contributions, the church asks for 1-% and my wife sometimes bugs me to do that much, but I usually come in around 5%, which is another $4k or $5k.

So $15k in itemized deductions and 7 personal exemptions can knock the taxable income down to around $45k. Add 4 child tax credits and the tax is almost wiped away - until I add my home business income. Last year that cost me about $6k in additional taxes on $21k of gross income, even after business deductions.

Replies:   Dominions Son
Dominions Son

@Joe Long

The biggest is mortgage interest, which for me is about $10k a year, but was double that when I was in Virginia.


The mortgage interest is effectively my only deduction.

Replies:   Joe Long
Joe Long

@Dominions Son

The mortgage interest is effectively my only deduction.


For the vast majority who do have a mortgage it will be the biggest deduction and by itself will usually get one over the threshold, allowing other deductions which they otherwise wouldn't be able to use.

The proposal is to double the standard deduction, cap the mortgage interest deduction and outright eliminate several others, which would have the effect of eliminating much of the current itemization.

For people around $80k-$100k, it's estimated about 8% would pay more tax, 80% would pay less. There's a peak of the percent of people paying more tax at a little over $100k as that's where some deductions and credits start getting phased out under the current law, so there would be no change for people at higher incomes.

Replies:   JohnBobMead
JohnBobMead

@Joe Long

The proposal is to double the standard deduction, cap the mortgage interest deduction and outright eliminate several others, which would have the effect of eliminating much of the current itemization.


The only time I was able to itemize was when I moved back to Oregon from Illinois, when I had to have all my possesions shipped, and since the move was work related, I could deduct those expenses; it was rather interesting, Oregon only allows you to deduct those expenses involved in moving to Oregon, or moving within Oregon, while Illinois doesn't care where you are moving to, only how much of it you paid within Illinois. Since all except $200.00 was paid within Illinois, I got to deduct practically all of it on both State Income Tax returns, which balanced out when I moved to Illinois, and couldn't deduct on either return.

So I must admit, doubling the standard deduction would have been very good for me, back before I went on disability. My parents were able to itemize for a good many years, but that was due to their medical expenses, so they'd really have rather not had enough deductions to itemize, if you get my drift. Being able to deduct mom's long term care related expenses was a god send.

Replies:   Joe Long
Joe Long

@JohnBobMead

Oregon only allows you to deduct those expenses involved in moving to Oregon, or moving within Oregon, while Illinois doesn't care where you are moving to, only how much of it you paid within Illinois.


Pennsylvania has [had] a flat income tax. One rate, no exemptions, no deductions* It's currently 3.07%. 40 years ago when I was starting to work it was 2%

*Some people sued for work mandated expenses, such as work says you have to buy work boots but you have to pay for them yourself, and the court agreed. But for most folks there are none.

Replies:   Dominions Son
Dominions Son

@Joe Long

Pennsylvania has [had] a flat income tax.


Until relatively recently Wisconsin effectively had a flat income tax, even though technically it wasn't. After 40 plus years without either legislative adjustment or automatic indexing of the brackets to inflation, you practically had to be on public assistance to not be in the top tax bracket. They finally got around to fixing it in the early 2000s.

Replies:   Joe Long
Joe Long
Updated:

@Dominions Son


you practically had to be on public assistance to not be in the top tax bracket.


Virginia has several income tax brackets, but it maxes out at $17k of taxable income, as defined on the federal return.

Virginia Taxable Income Rate
$0 - $3,000 2.00%
$3,000 - $5,000 3.00%
$5,000 - $17,000 5.00%
$17,000+ 5.75%

Replies:   Dominions Son
Dominions Son

@Joe Long

Virginia has several income tax brackets, but it maxes out at $17k of taxable income, as defined on the federal return.


About the same as what Wisconsin was before they fixed it except in Wisconsin the top bracket is a 6% rate.

Grant

I thought the Australian taxation system sucked, but after reading many of the posts in this thread i'll concede we've got nothing on the American system.

Replies:   Dominions Son
Dominions Son

@Grant

Oh, it can get much worse than what has been discussed here. A not insignificant number of people live in one state an work in another, which can mean filing for state income taxes in multiple states.

The general principle is that income is taxed in the state where it is earned.

Now many states have what are called reciprocal tax agreements with their immediate neighbors. These are agreements between two states where if someone works in one state and lives in the other, their income will be taxed in the state of residence. However, there are a few states with no reciprocal tax agreements.

A lot of pro athletes have this issue as they are generally paid per game, so the income is considered to have been earned where the game was played, not where their team is based.

There are some large national law firms and accounting agencies which are still run as partnerships despite their size. Due to the way partnership earnings are assigned to the individual partners, most of the partners in these firms have to file in many states, and some even have to file in all 50 states.

Our tax system has more costs than just what we pay the government. Tax preparation is a $7 Billion industry.

Americans collectively spend more than $7 billion just on getting their tax forms ready to file.

Capt. Zapp

@Dominions Son

Americans collectively spend more than $7 billion just on getting their tax forms ready to file.


Considering how much tax preparers charge to complete your forms, it doesn't surprise me. I do my own now since I don't earn enough to pay the $250+ to have them 'professionally' prepared.

Replies:   richardshagrin
samuelmichaels

@Dominions Son

Our tax system has more costs than just what we pay the government. Tax preparation is a $7 Billion industry.

Americans collectively spend more than $7 billion just on getting their tax forms ready to file.


Franky, $7B is a drop in the bucket, when you divide it by the number of taxpayers (individual and corporate). I don't know the full direct and labor cost, but this site, probably biased, estimates it at $409B.

Not_a_ID

@Joe Long

My goal is not to minimize the amount of taxes paid, but rather to maximize the amount of money left in my pocket.

If I pay off my house I'll lose my mortgage deduction. Keeping the mortgage means I pay $1000 a month to avoid giving $150 to the government. If I pay off the mortgage I'm ahead $850.

Yeah, the mortgage tax deduction is a funny one for many people. They'll deliberately not pay off the mortgage because they're convinced the deduction is helping them as they always hear about how great that deduction is. While never bothering to do the actual math.

I'd rather pay the $150 to the government than the $1,000 to the bank.

richardshagrin

@Capt. Zapp

how much tax preparers charge to complete your forms

I go to a local library and on selected days AARP has volunteer tax preparers available who do mine for free. I do need to bring a lot of forms like W2s and income statements and a social security card to prove I am 65 plus and me, but free is a good price. They file electronically, but I have to wait a couple of months to get a refund. If I owe, they give the government your checking account number so it gets its money pretty quickly. Beats the heck out of filling out all those forms by hand and mailing them in. Paying the post office so you can pay the rest of the government seems like a really bad deal.

JohnBobMead
Updated:

@Dominions Son


Our tax system has more costs than just what we pay the government. Tax preparation is a $7 Billion industry.


There are some reasons for that, other than how complex the returns sometimes get, since the vast majority are actually quite simple.

While some staters don't require their paid tax preparers to be licensed, a number do; this is actually a good thing, because those who don't require this have a number of fly-by-night operators who do a bad job and can't be found when the return gets audited. That's why Oregon switched to requiring licensing, and year round reliable contact addresses for paid preparers, and continuing education, etc.

The thing with Income Tax preperation as a business is this, it's seasonal. Yes, there is a trickle of work year round as people file late or revise returns, but even H&R Block and the other major chains drastically cut their staff back after the first of May. So, unless you have a steady source of income for the rest of the year, you have to make the majority of your income in a four month period.

Dad made a go of it since he had a small but steady accounting business year round, the office was in the home, and mom was well paid. That didn't really change all that much when mom went on disability. I worked with him for three years before going back to finish my college degrees, and it was definitely the income tax season that made it possible for me to get by, even though I lived with my parents. And we were _not_ charging the high rates; due to our ideological beliefs, we kept our fees rather below the market rate, so that retirees could afford us,a dn even then it was not unusual for us to discount our fees even further; hey, we'd just filled out their return, we _knew_ they couldn't afford our full fee!

But we kept 12-13 hour days for four months, seven days a week, and were turning away business. The rest of the year we were open tuesday through thursday. The largest fee I ever charged for a return was $450.00, and that return had Oregon part year, NY part year, NYC part year not matching the NY part year time period, and the federal return, including several differnt moves moving expenses. That was, of course, the one time I got stiffed by the client; we did not require payment prior to turning over the completed return, and he was the only one who took advantage of that to not pay. Everyone else paid us, eventually. But that $450.00 return would have cost him at least twice as much at H&R Block at that time, I'm pretty sure. Pre-Internet, you couldn't just download forms and instructions online, you had to order them in advance; the New York portions required me to contact the New York Dept. of Revenue and get them to mail me the neccessary forms and instructions.

I remember when IRS Form 1040-EZ first came out, we thought that would result in a change in who we had as clients as there were a number of our steady customers who qualified for that form. Nope, they were there right on schedule. The first year the Form 1040-EZ did not have a signature line for a paid preparer; the second year and ever after it did; I cannot for the life of me understand how someone who qualifies for the IRS Form 1040-EZ could need assistance filling it out, but we had a steady stream of 1040-EZ returns every year, and only charged a token fee, even lower than our previous lowest rate, because all it took was the time to fill out the form. I mean, Do you have any income other than W-2 income, and does your W-@ income exceed X dollars? Do you have interest income of more than $400.00? Do you have enough deductions to itemize? Do you qualify for any tax credits other than X? If you answer yes to any of these, you can't use the 1040-EZ, so all you do with the 1040-EZ is total the W-2 income, enter it in the proper line, enter any interest income in the proper line, total them, deduct the standard deduction based upon your filing status, look up the tax on the resulting number in the appropriate tax table, deduct any allowed tax credits, deduct the income tax witholding listed on the W-2, and voila! Your refund or tax due.

But we filled out a ton of those every year. The whole reason for the creation of the 1040-EZ was that these people shouldn't need to pay to have someone fill out their return for them if they qualified to use it, so they removed everything from the standard form 1040 that didn't pertain to make it idiotproof. While I believe most of those who qualified to use it did so on their own, a significant number still wanted someone else to fill it out, a large enough number that they added a paid preparer signature line after the first year.

Those 1040-EZs filled out by tax preparers are all returns that add into the listed cost of tax preperation for the year, that shouldn't have been there, except that some folks are so terrified of the forms, I guess, that even a 1040-EZ is something they can't handle.

Replies:   Grant
Grant

@JohnBobMead

If you want people to read your posts, I would strongly recommend making use of paragraphs & spacing between them.
Solid blocks of text are impossible to read.

Replies:   JohnBobMead
JohnBobMead

@Grant

If you want people to read your posts, I would strongly recommend making use of paragraphs & spacing between them.
Solid blocks of text are impossible to read.


Truth.

Is it better now?

Replies:   Grant
Grant

@JohnBobMead

Is it better now?

Orders of magnitude.

Replies:   JohnBobMead
JohnBobMead

@Grant

Orders of magnitude.


I have to remember that I _can_ format here.

On Facebook, to hit return is to post, if replying to another; a first post does allow returns, requiring clicking on a post button.

Although, occasionally, you will see where someone wrote their reply offline in a text editor and then copy/pasted it in. Doesn't happen very often.

Then again, while not as bad as Twitter, most replies are short, and if in disagreement, inflamatory with little substance.

Here, even when in disagreement, the discourse is much more civil.

I like that.

Replies:   Geek of Ages
Geek of Ages

@JohnBobMead

On Facebook (and a lot of other places), shift-enter is a soft return, where it adds a line break without posting.

Replies:   JohnBobMead
JohnBobMead

@Geek of Ages

On Facebook (and a lot of other places), shift-enter is a soft return, where it adds a line break without posting.


Cool!

Had not come across that previously, thank you ever so much for letting me know about it!

The one time I saw formatting in a FB reply, I asked about it, and they had written the reply in a text editor and then copy/pasted it.

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