I was just on a editorial call about finance and the subject of taxes came up.  Over half the people had not prepared their taxes.  There was a stat that almost 50% of Americans wait until after April 1 to start preparation.

Interestingly enough...when I opened this thread the ad banner at the bottom of the page was for a tax service. lol

 

But, I get 'em done early and off of my mind.

I don't see an option for filing for an extension and then doing them in August.

I normally do them early. This year was a pain because I had to do four different returns because I moved in the middle of the year. BLEH. Plus I free-lanced and got my ass kicked for that. And Lakewood wants their money up front for 2008. GEEZ!

I don't see an option for filing for an extension and then doing them in August.

 

This will be the first year in many that I haven't filed for an extension. This is also the first year in many I haven't been mixed up in several messy businesses. Good riddance! It's good working for The Man.

i love my mommy

It would be interesting to see all demographic polls final results in one thread.

My husband takes care of our taxes.   :-D

I always get an extension, and sometimes don't even file within the extension.  Usually the fines aren't too bad.

I'm usually done by the first week of February - I'm just glad to get it done and out of the way.

I always get a refund, so I do them as soon as I get all my info...normally early Feb.

Did them in Feb.  Oh and I got a nice refund too.

Sorry to point this out, but if you're getting a refund, you're paying too much in taxes. It's sweet to get that check, but there ARE better savings strategies out there. Such as savings accounts, CDs, Money Market Accounts, IRAs, piggy banks...

^^^^ It's nice to give those options, but some may not be disciplined enough (and they will be the first to admit it) to follow through. To some, paying a little extra in taxes per paycheck ensures you will 1) not owe at the end of the year and 2) may have some cash for home improvements, vacation, tuition, or whatever. To each his own!!

i didn't see a place on my return to declare "income from meth labs"

^^To each his own, but your hard-earned money lining the government's pockets 12 months less a day a year.

^ Exactly right on with that one. Why let the government's bank account grow for 12 mos while taking from yours?

 

 

A quiet thread, but I found this article worthy of reviving it.  2016 vs 2011 comparison is included.

 

How $100 of Your Taxes Are Spent: 8 Cents on National Parks and $15 on Medicare

Half of all spending goes for Social Security benefits and health programs such as Medicare and Medicaid

 

https://www.wsj.com/articles/how-100-of-your-taxes-are-spent-8-cents-on-national-parks-and-15-on-medicare-1492175921?mod=e2tw

Where do our taxes go. This new website tells all, ..."The database is perhaps the first nonpartisan effort to create a fully integrated look at revenue and spending across federal, state and local governments."

 

Steve Ballmer Serves Up a Fascinating Data Trove

 

In an age of fake news and questions about how politicians and others manipulate data to fit their biases, Mr. Ballmer’s project may serve as a powerful antidote.

 

“How many people work for government in the United States?” he asked, with the excitement of a child showing off a new toy, before displaying the answer. “Almost 24 million. Would you have guessed that?”

 

“Well, let’s look at that. People who work in schools, higher ed, public institutions of education — they are government employees.” And they represent almost half of the 24 million, his data shows.

 

Suddenly, he explained, the faceless bureaucrats who are often pilloried as symbols of government waste start to look like the people in our neighborhood whom we’re very glad to have.

 

At one point, as he showed me the value of certain tax deductions and blurted out, “If you look at these tax deductions for employer-provided health or for state and local taxes or mortgage-interest deductions, they’re really subsidies to the affluent, which I guess I hadn’t thought about them.”

 

https://www.usafacts.org

 

https://www.nytimes.com/2017/04/17/business/dealbook/steve-ballmer-serves-up-a-fascinating-data-trove.html

^Amazing to see how small inheritance taxes are as a percentage of government revenue.  It might be less than 1%. 

^it is because over 90% of wealth in this country is earned and not passed down generation to generation.

^ It is because very few estates are actually taxable.

^because the vast majority of wealth is earned not inherited

^Also because the threshold for the federal estate tax is currently very high by modern historical standards. See, you're both right!

^ In terms of net worth, inheritances and gifts have historically accounted for

between 20 and 50 percent of total household wealth accumulation in the U.S.

 

https://www.bls.gov/ore/pdf/ec110030.pdf

 

I'm not sure where you got 90% from but my guess is your buttocks.

 

Most of those inheritances are small not multi-millon dollar inheritances. These are little nest eggs people inherit to help them retire (possibly) or buy a small house on their own, or go to school. These are not enough to give up a day job and live like a rock star. If you look at any stat around wealth, and you are welcome to google it, they pretty much all say that inherited wealth is gone by the third generation. There are many reasons for this but typically the vast majority of millionaires in this country earn their wealth and it is not created through inheritance. 

 

So no, this is not pulled from my buttocks. It also accounts for wealth from the millionaire class not everyone who inherits, because, yes, there are a number of people who will inherit 250k or less from a family member (typically in the form of a house) who passes away.

^ It still makes your assumption wrong. 

 

The threshold for estate taxes is around $5.5 million per individual.  That is the reason that estate taxes generate little revenue. 

 

Less than 0.1% of estates pay any tax at all.

That 90% of millionaires in this country are self made? No it doesn't. Your data only deals with inherited money and is made up of mostly small inheritances that comprise the bulk of this

20 - 50 % of net worth comes from inheretence and gifts.  I've provided data for this.  You've provided bupkis.

^ 62% of millionaires are self made not 90%. 

 

https://www.entrepreneur.com/article/269593

 

this is billionaires...

 

it is 67% for millionaires but nowhere near 90%

 

http://www.fa-mag.com/news/most-millionaires-self-made--study-says-14565.html

^because the vast majority of wealth is earned not inherited

 

For someone starting from nothing who achieves a multi-million or decamillionaire net worth, most of their wealth will have come from capital gains, dividends, rent, etc., not earned income.  All of that is taxed at a significantly lower rate than it was before Reagan which has enabled those who could invest to accumulate much higher levels of wealth than they could have in the 1950s-70s. 

 

The problem with low taxes on all that is that it encourages speculative activity in stocks and real estate.  Part of the reason why France weathered the 2008-09 financial crisis better than England or us is because their higher tax rates discourage reckless speculation.  Also, their banks had enough sense to stop buying our mortgages a year before ours did. 

Most of those inheritances are small not multi-millon dollar inheritances. These are little nest eggs people inherit to help them retire (possibly) or buy a small house on their own, or go to school. These are not enough to give up a day job and live like a rock star. If you look at any stat around wealth, and you are welcome to google it, they pretty much all say that inherited wealth is gone by the third generation. There are many reasons for this but typically the vast majority of millionaires in this country earn their wealth and it is not created through inheritance. 

 

So no, this is not pulled from my buttocks. It also accounts for wealth from the millionaire class not everyone who inherits, because, yes, there are a number of people who will inherit 250k or less from a family member (typically in the form of a house) who passes away.

 

Federal estate tax threshold is $5.5 million.  So the first $5.5 million of an estate is not taxable.  It used to be much lower.  Many, if not most, states have done away with their own estate taxes.  In Ohio, the threshold used to be $337K, and only the amounts above that amount were taxed.

 

Regardless, almost all multi-millionaires are smart enough to get some very good estate planning done before their death and their wealth does not pass through estates, but rather trusts and, to a lessor extend, TOD/POD designations.  Very difficult to track the transfer of wealth when it is done through a trust that will pay for your tuition, mortgage, health care, 'expenses', etc.  Sound estate planning is why the revenue ends up being much less than what it should be. 

Plus, there's actually a reverse estate tax for estates smaller than the federal taxable threshold, since the basis on all those inherited stocks steps up without ever being taxed.

^ It used to be $1million threshold until 2001, but was never pegged to adjust to inflation until 2013 when OBama signed the bill into law with the new estate and gift thresholds. It desparately needed to be raised because the problem was that it would have killed many small family businesses who would have been subject to a large tax on the death of the founder and would often have to liquidate after that. This was especially evident in farming and other asset intensive family businesses. $5.5 million is not that much when you consider the value of these assets. Yes, people use sophisticated planning and trusts and gifting mechanisms to minimize this as much as possible but the goal of the law is not necessarily to hit the estates in the $6 million range or even $10 million range, the law is to hit the estates in the 30-50 million range where there is real money worth taxing. With those estates, there is really no amount of planning you can do to completely eliminate estate tax.

 

Also, there have been studies done that an outright repeal of the estate tax will actually generate more tax revenue over time than keeping it because the step up in basis that people who inherit receive will go away thus increasing the taxable value of the asset when it is eventually sold.  So repealing the estate tax may actually generate more revenue and taxes then keeping it.

Before my dad passed, we had our farm re-appraised. Our family has owned the farm since at least the '50s, but due to that re-apprasial in the late 2000s when we sold a small parcel last year we had a loss despite selling it for 50X what we paid for it.

Also, there have been studies done that an outright repeal of the estate tax will actually generate more tax revenue over time than keeping it because the step up in basis that people who inherit receive will go away thus increasing the taxable value of the asset when it is eventually sold.  So repealing the estate tax may actually generate more revenue and taxes then keeping it.

 

Could you post a link to one of these studies?  This is news to me and I'd like to see the numbers behind that theory.

^On speculative subjects such as this, you can find a study which will lend support to any conclusion you desire. 

 

I'm totally in favor of eliminating estate taxes.  But I do think inheritance taxes (there's a difference) should be imposed.  The inheritance, whether through probate, trust, or some other mechanism, is realized, then it would be taxed as part of your income.  So the estate wouldn't be taxed, but the beneficiary would.  This would be most impactful on already rich people inheriting more wealth and less so on middle class families inheriting a small sum.  I'd even be in favor of some threshold for inheritance tax.... maybe exempting the first $100k per beneficiary..... especially for those in lower tax brackets.

Also, there have been studies done that an outright repeal of the estate tax will actually generate more tax revenue over time than keeping it because the step up in basis that people who inherit receive will go away thus increasing the taxable value of the asset when it is eventually sold.  So repealing the estate tax may actually generate more revenue and taxes then keeping it.

 

Sounds like some Koch-funded nonsense (the Koch Bros of course inherited a huge business).  There is simply no question, with 1,000 years to look back on, that aristocracies form and remain entrenched largely with the aid of low or zero taxation.  The French aristocracy was taxed out of existence and thanks to the rise of the Labour Party only a fraction of England's landed gentry wield much power today. 

^On speculative subjects such as this, you can find a study which will lend support to any conclusion you desire. 

 

I'm totally in favor of eliminating estate taxes.  But I do think inheritance taxes (there's a difference) should be imposed.  The inheritance, whether through probate, trust, or some other mechanism, is realized, then it would be taxed as part of your income.  So the estate wouldn't be taxed, but the beneficiary would.  This would be most impactful on already rich people inheriting more wealth and less so on middle class families inheriting a small sum.  I'd even be in favor of some threshold for inheritance tax.... maybe exempting the first $100k per beneficiary..... especially for those in lower tax brackets.

 

The estate and inheritance taxes have always been two separate things.  An inheritance, as I understand it, is taxed at different rates depending on your relationship to the deceased.  If you are a distant relative or friend, you are taxed at a much higher rate than a child. 

 

 

^That's a distinction without a difference for a vast majority of people. There is no federal inheritance tax and I think very few states have them.

 

Also, there have been studies done that an outright repeal of the estate tax will actually generate more tax revenue over time than keeping it because the step up in basis that people who inherit receive will go away thus increasing the taxable value of the asset when it is eventually sold.  So repealing the estate tax may actually generate more revenue and taxes then keeping it.

 

Not really my area of expertise, but isn't the basis step-up an independent policy decision? Meaning, you could eliminate that tax freebie while also keeping the estate tax. I think the only direct relationship here is that eliminating the step-up is often offered up as a trade for totally eliminating the estate tax.

^On speculative subjects such as this, you can find a study which will lend support to any conclusion you desire. 

 

I'm totally in favor of eliminating estate taxes.  But I do think inheritance taxes (there's a difference) should be imposed.  The inheritance, whether through probate, trust, or some other mechanism, is realized, then it would be taxed as part of your income.  So the estate wouldn't be taxed, but the beneficiary would.  This would be most impactful on already rich people inheriting more wealth and less so on middle class families inheriting a small sum.  I'd even be in favor of some threshold for inheritance tax.... maybe exempting the first $100k per beneficiary..... especially for those in lower tax brackets.

 

The estate and inheritance taxes have always been two separate things.  An inheritance, as I understand it, is taxed at different rates depending on your relationship to the deceased.  If you are a distant relative or friend, you are taxed at a much higher rate than a child. 

 

Correct.  But I wasn't specifically contemplating inheritance taxes in a way a state like NJ imposes them (similar to what you describe).  I'm simply proposing there be no tax to the estate, but rather any tax burden be passed on to the individual beneficiaries through the use of a form like a K1. The beneficiaries would do much better because the estate tax rate for things that are still taxable (such as income earned by the estate) is much higher than the rates most individuals pay, but some public revenue would be raised as well. 

Yes and no. Put it this way, you will never get rid of the step up without getting rid of the estate tax. If you get rid of the step up, what it will do is prevent small businesses from ever being sold because of the tax hit people would face. Also, some people would be hurt extremely hard while others not as much. If you own a stock of say GM for 50 years and the stock is worth say 50 million. Using reasonable tax planning, estate tax would be subject to $40 million of that value. If the estate tax is 50% to use round numbers you pay $20 million in estate tax. Now to pay the tax, the people who inherit must liquidate the stock. Because the stock is so old, the basis in the stock in only 500k. If 20 million is sold to pay the tax, it will generate another 5 million tax that needs to be covered so you essentially have to sell about $25 million to cover your tax without the step up in basis which makes the tax rate 60%.

 

Other people who are fortunately enough to inherit a higher basis will only be taxed on $20 million and pay a lower tax rate because of this. It would really hit those small family businesses who have a small plant or farm in the family for 50-60 years and put them out of business or make them unable to sell in these scenarios. It would also dilute the value of their asset because it would force them to sell under duress to pay the tax bill. This is why there is the step up in basis and why it will be difficult to untangle from the estate tax.

 

By getting rid of the estate tax, you will see revenues go up when they eventually sell these businesses because of the lack of a step up at that time. It is the difference between the short term v long term. Do you give the government the short term gain or wait longer for a bigger payout, or allow the inerhitors the short term gain (no estate tax) or give them the long term gain of step up in basis 

Across the pond, the wealthiest heir in England (perhaps wealthier than the royal family) just inherited over $10 billion without paying taxes:

http://news.nationalpost.com/news/world/meet-the-new-duke-of-westminster-a-billionaire-bachelor-with-the-longest-silver-spoon-anyone-can-have

 

Hugh Westminster is now the richest man on Earth under the age of 30. His is an inheritance that dwarfs the crass exaggerations of film-makers and storytellers. It includes more land than the Queen owns; a collection of paintings by Rembrandt, Velasquez, Stubbs and Lucian Freud; Liverpool One shopping centre and the freehold of the American embassy in Grosvenor Square. Current projects of the huge property empire that bear his name are scattered as far afield as Stockholm, Washington and Suzhou Riverbank in Shanghai. Were it not carefully settled into trusts – and therefore exempt from inheritance tax at 40 per cent – the new Duke’s birthright would net the Treasury a sum close to its entire 2015-16 inheritance tax revenue of $7.9 billion.

^^Damn.  I only got $20 million handed to me.

 

Seriously though, I think that stocks are a bad example to use because they can be placed in investment accounts that have a TOD/POD designation and the tax consequences, if any, would be through capital gain only when the stocks are liquidated. 

 

The rest of your argument sounds an awful lot like voodoo economics.

^ stocks are not the best because at the end of the day they can be liquidated and yes, people still get 15 million. The only question is whether it is fair that all things being equal one person pays a 50% tax rate and the other pays 70% for the same amount of money at stake. I don't think that is all that inherently fair personally, but at the same time, when you are talking about that amount of money it is hard to be too sympathetic to multimillionaires in this boat.

 

Again, the bigger concern is the devaluing of a fixed asset and how it will lead to a concentration of wealth within a fewer wealthy individuals. If you own a family farm valued at say $20 million and that farm generates say $500k a year in profits to its owners (not too bad but split it 5 ways and it becomes much less) Now you need to pay the tax bill on $10 million of it which is about 5 million. To do this, you must sell the asset to another buyer. In the open market it would sell for say $20 million or maybe more. However, given that there is a big tax bill with a due date coming up, the owners may have to offer the asset at a fire sale price. Now the asset sells for $12 million to someone who is financially strong enough to make the deal happen. They get a big windfall and an undervalued asset. The sellers pay their tax, but effectively receive very little to show for it. 

Again, the bigger concern is the devaluing of a fixed asset and how it will lead to a concentration of wealth within a fewer wealthy individuals. If you own a family farm valued at say $20 million and that farm generates say $500k a year in profits to its owners (not too bad but split it 5 ways and it becomes much less) Now you need to pay the tax bill on $10 million of it which is about 5 million. To do this, you must sell the asset to another buyer. In the open market it would sell for say $20 million or maybe more. However, given that there is a big tax bill with a due date coming up, the owners may have to offer the asset at a fire sale price. Now the asset sells for $12 million to someone who is financially strong enough to make the deal happen. They get a big windfall and an undervalued asset. The sellers pay their tax, but effectively receive very little to show for it. 

 

If a $20 million farm is generating revenue of $500 thousand a year, isn't that an annual return of only 2.5% (not including the effort necessary to generate that revenue)?  Sounds like from a numbers perspective selling the farm, investing the proceeds and getting into another business would be best.

It is the asset value not the revenue generated that is causing the tax hit. This is often the case with real estate. So yes, that is common with fixed assets like real estate. The $20 million asset will generate $2 million a year in revenue. That $2 million a year generates the $500k cash flow for a 25% annual return not 2.5%. The value of the fixed asset is a 10 factor on the $2 million in revenue generated.

Again, the bigger concern is the devaluing of a fixed asset and how it will lead to a concentration of wealth within a fewer wealthy individuals. If you own a family farm valued at say $20 million and that farm generates say $500k a year in profits to its owners (not too bad but split it 5 ways and it becomes much less) Now you need to pay the tax bill on $10 million of it which is about 5 million. To do this, you must sell the asset to another buyer. In the open market it would sell for say $20 million or maybe more. However, given that there is a big tax bill with a due date coming up, the owners may have to offer the asset at a fire sale price. Now the asset sells for $12 million to someone who is financially strong enough to make the deal happen. They get a big windfall and an undervalued asset. The sellers pay their tax, but effectively receive very little to show for it. 

 

If a $20 million farm is generating revenue of $500 thousand a year, isn't that an annual return of only 2.5% (not including the effort necessary to generate that revenue)?  Sounds like from a numbers perspective selling the farm, investing the proceeds and getting into another business would be best.

 

Welcome to farming.

And that pretty much sums up why any farmer lucky enough to be close to a big city decided to take the easy payout and sell off their land to be developed.