Current actions in Congress are affecting the income tax filings, and returns, for Americans for the 2010 tax year. While payroll tax changes will allow for increases in employee’s take-home pay, coming tax reforms may eliminate many of the tax breaks that we now enjoy.
Increased Take-Home Pay
New cuts in payroll taxes for 2011 will increase take-home pay for most workers. The IRS recently released new income-tax withholding tables and instructions to help employers implement the 2011 cut in payroll taxes.
Millions of Americans will see their take-home pay increase during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This allows for a two percent payroll tax cut for employees by reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of paid wages. But this Social Security withholding change will have no effect on the employee’s future Social Security benefits. The new law though, also maintains the income-tax rates that have been in effect in recent years.
Workers won’t need to take any additional action, such as filling out a new W-4 withholding form, because employers and payroll agencies will handle the withholding changes.
Ending Tax Breaks is a Good Thing
While eliminating tax breaks may sound like bad news to some, it is actually good news. The more tax breaks we eliminate, the simpler the tax code gets. This is something we can all be in favor of.
Reducing tax breaks, for everyone, means that everyone is treated more equally. Hopefully it will also result in the 40% of “taxpayers” who presently pay no tax actually having to pay some taxes for the benefits they receive. This will cause them to truly have “some skin in the game”. All these are good things.
Have you ever tried to reason with a someone who is emotionally convinced they are right? No amount of logic or evidence can convince them they might be wrong. They remain firmly entrenched in their beliefs.
Some good folks believe that the IRS may be unconstitutional. But it doesn’t matter that they may be incorrect in their views. They’re convinced they are right and it is very difficult to convince them to the contrary.
Even Idaho’s Republican lawmaker Phil Hart believes the IRS is unconstitutional. As a result, he stopped paying his taxes to protest the IRS. Not surprisingly, the IRS wasn’t convinced by his position and they slapped a $300,000 tax lien on him. One would hope that an elected US government official would choose a different method to express his feelings than stop paying taxes, increasing the tax burden on his constituents.
Apparently Mr. Hart felt that it was alright for the people who elected him to pay his salary, benefits and social programs and he should not contribute. (Read the article at KHQ.com)
What’s the lesson here? Taxpayers are free to believe that the IRS and the current system of taxation is unconstitutional, but believing that doesn’t make the IRS go away. The best way to change a system is to work to change the system using legal means, not by breaking the law, or causing the government to come after you.
It doesn’t help you, or change the tax laws, if you damage your financial life by having the IRS come collecting.
If you owe back taxes, you should strongly consider dealing with the IRS – sooner rather than later.
[Image source: Phil Hart Constitutional Income Book]
About Arnold Schwarzenegger
Arnold Schwarzenegger rose to fame as an Austrian body-builder, then a B-list movie actor, and finally a headlining star. No one goes to see an “Arnie” movie because of his acting ability but we all pay a lot of money to see his movies anyway. As the result of movie earnings, plus other business endeavors, Schwarzenegger’s net worth is measured in the hundreds of millions.
Of course, this story wouldn’t be complete without the step from acting to politics and now Arnold is the governor of California, a state that is teetering on the verge of financial collapse.
Californians can rest assured that their government officials will pay their federal taxes, as long as they are continuously reminded by the IRS.
Arnold Schwarzenegger tax problems
On May 11, 2009, the IRS filed a $79,000 tax lien against Arnold Schwarzenegger. (Source: The Los Angeles Times). While this is more than many people make in a year, Arnold’s people quickly dismissed it as an error and said the governor paid his tax debt right away.
About Conrad Murray
Some celebrities are famous for their skill in acting or singing, but not Conrad Murray. Murray is famous for being the doctor to The King of Pop, Michael Jackson, and is now embattled with legal problems for the alleged role he played in Jackson’s death.
It is said that Conrad Murray has a history of owing people money: According to the Huffington Post, Murray’s medical practice owed thousands of dollars in fines and judgments and overdue fees on loans and credit cards. To top of the “nice guy” image, he also owes thousands in child support and even had a fine of nearly $1,000 for driving with an expired license plate and no proof of insurance.
Conrad Murray tax problem
The Huffington Post also reported that Murray owed back taxes so we went hunting for them and found a tax lien of over $23,000 owing in back taxes in 1993, 1996, and 2003.
Our country was founded on certain inalienable rights and millions of people flocked to the United States of America because we enabled opportunity. We were a land where, if you worked hard, you could prosper and avoid excessive taxation by the King. Our history books may not be as long as other, older countries, but our history books are filled with the names of people who have come to America with nothing and built personal fortunes from hard work, perseverance and ingenuity.
And let’s not forget the millions more, like my forebears, who never got rich, but have been able to provide a decent living for their families through honest work.
My hat goes off to those who have dreamed the American Dream and have achieved it. Unfortunately, for many of those who have worked hard to become financially successful or provide more for their families, the American Dream has turned into a tax nightmare: A bad dream where you work hard while others take your hard-earned money. We’ve turned into a nation that redistributes wealth, with the IRS taxing the higher income earners a disproportionately high amount while writing a check to those who have not worked and sacrificed for their income.
Now, let me say this: I believe America should be a land of equal opportunity, but not a land of equality. I believe people should be treated fairly regardless of their skin color, national origin, religion, etc. I think that’s something that makes America great. But we aren’t helping by heavily taxing what one person has honestly earned and giving to others. By this we are teaching them that wage theft, in the name of being “fair”, is permissable.
A society that offers its citizens an equal opportunity to work hard and advance themselves is all that can be expected of “fairness”. A society that forcibly takes earned income away from one person to give to another person is actually discouraging hard work. Entrepreneurs work unhuman hours to create the future, while undertaking significant risks. Entrepreneurs and successful businesspeople should not have to pay more to the Internal Revenue Service if their risks pay off, just as they would not receive an award if their startup venture failed.
We want to encourage every American to stand on their own two feet and to push forward, not enable them to continue lying down and not contribute to society.
We have become a nation of takers and givers, as Sherman Frederick points out in his article Tax Man Comes For Half of Us. We have become a nation of that says “wealthy” people (however the takers want to define it at any given moment) should be forced to give their income away to others.
Those receiving the handouts from massive taxes should rise up in revulsion and say they don’t want what they didn’t produce, and that they don’t want to treated like a charity case.
Have we reached the point where receiving free handouts is no longer shameful, and considered a “right”?
If we create a nation of people who expect a “hand out”, then we’ve fallen so far from our founding ideals that we may not recover.
Who’s to blame? Sherman Frederick points to Obama and Democrats in general (and a few Republicans). I think it’s easy to blame Obama, and he certainly deserves to shoulder a large share of the blame, but I believe it extends far beyond the current President. From eroding values to disengaged parenting, there are a lot of reasons that we’ve become a country of people seeking instant, selfish gratification without lifting a finger.
Let’s initiate change: Work harder. Seek the pride and satisfaction of a job well done. Sacrifice to get a better education. Save money and spend it less frivoulously.
Contact your government representatives at all levels and demand fairer taxation and aggressive government representation. Commit to working to change things in your own circumstances through hard work, a determined will, and guidance from your core beliefs.
And remember – pay your taxes, but take every legal tax-minimizing break you can to avoid redistributing more of your wealth than is necessary.
Through social change there may be a day when our tax debts decrease instead of the current increasing trend.
Our neighbors to the north have their own version of the IRS, called the “Canada Revenue Agency” (CRA). Recently, a news item came to my attention that may not have an immediate impact on US taxpayers but should be a warning sign that immoral behavior by revenue agency officials can happen anywhere!
The CRA, which is staffed by 40,000 people and serves a similar function to the IRS, recently uncovered a shocking number of cases in which CRA employees used government information inappropriately: It seems that sometimes they snooped on spouses or friends and other times they accessed income tax data to give their family and friends preferable tax treatment. In fact, the article reported that in one office alone 13 employees accessed tax records and confidential information inappropriately, with 10 of them providing preferential treatment to people.
There are about 120,000 IRS employees. If it can happen in Canada’s CRA with only one-third of staff that the IRS has, it can certainly happen in the IRS. In fact, I’d suggest that the size of our highly bureaucratic system could make it even more susceptible to such nefarious usage simply because the bigger things are, the more complex they tend to be.
So, while you might be suffering with a tax problem and hopeful of a resolution, you need to wonder if those exact same people that are knocking on your door demanding money are not also extending preferential treatment to their friends and family!
We can only hope that periodic tax audits and careful watchdogging will keep this from happening… but we can never be completely sure. The IRS is the largest collection agency in the world, and they have nearly unlimited power to enforce tax collection.
The IRS wants taxpayers to pay their outstanding taxes. If those taxes aren’t paid, the IRS has a growing arsenal of actions it can take, from garnishing wages to seizing assets.
That’s right, the IRS can and will seize your assets in lieu of your tax payments. Now, don’t think of them as a giant pawnshop where you can get your favorite chair or your mother’s wedding ring back once you’ve paid. The IRS will put your stuff up for auction! Airplanes, boats, vehicles, homes, property, the list goes on and on. (Check out the IRS Auction Site… if you don’t see something you like today, new items are listed regularly, all “donated” by tax payers who are unable to pay their taxes).
Now, more than ever, people with tax problems need to take an active approach to fighting the IRS to clear up their tax issues and their good name. Leaving your tax problem and hoping it will go away could mean that you’ll get a knock at your door and they’ll be asking for the clothes on your back (figuratively speaking)! Wishing that the IRS won’t come after you isn’t much of a game plan, and it isn’t going to work. If you have tax problems, they’re looking for you so they can look through your stuff like a kid with a catalog at Christmas.
In poker, the term “grinder” refers to a player who spends their days playing poker. Grinders treat poker like a business, sitting down for 8 hours to play, grinding it out like everyone else might grind out their work at a day job.
Michael Mizrachi’s nickname is “The Grinder” and he does exactly that, “working” at poker in a way that others might work at picking up garbage or running a cash register. And, like the rest of us, he has taxes to pay.
Unfortunately for Mr. Mizrachi, the IRS has recently put a lien on his home for $340,000 in unpaid taxes.
Over the course of his poker-playing career, the young Mizrachi has earned a whopping $6.9 million but, though poor money management and accounting practices, he owes $339,711, and he is facing foreclosure.
For many taxpayers, especially younger ones who begin to make a lot of money quickly in business, sports, Hollywood, or poker, taxes come as a nasty shock. People expect to pay taxes but making a lot of money can bump you up into a higher tax bracket very quickly, resulting in taxes owed that are far greater than you expected. It’s even more difficult to estimate the amount of tax you will owe when you don’t make a regular wage but rather earn your money in fits and starts (as a poker player might win a few times a year or a movie star might earn a few checks a year). Lots of my self-employed clients have this problem.
In Mizrachi’s case, it’s not simply a matter of putting in overtime or asking the boss for a raise. If he plans to continue “running his poker business”, he needs to play… And he needs to win… And he must develop the discipline to pay his taxes – on time.
This is a cautionary tale for those who want to play professional poker, professional sports, get into acting, or be a normal self-employed person: With every single paycheck, estimate the amount of taxes you owe and set that money aside (or pay quarterly) to avoid tax problems down the road.
People are in for a wake-up call: Non-profit organizations (excluding churches) that report less than $25,000 in income in 2010 might discover in 2011 that the donations they received through 2010 were not tax exempt.
Here’s what’s happening: The IRS is requiring non-profit organizations (except for churches) whose reported income is less than $25,000 to fill out an additional form. The due-date for that form was the middle of May but nearly 214,000 non-profits had not filled out the form.
No one will realize their error and they will continue taking donations through the year. Then, when it comes time to issue donation receipts, here’s what will happen:
The organization will discover that it has lost its non-profit status and the generous donations throughout the year will not be tax deductible.
The organization itself will have to report for-profit income, which could be financially devastating to the organization. Meanwhile, the people who have given throughout the year with the full expectation of the tax-deductible benefits of their donation will suddenly discover that they paid money and are receiving no tax deduction in return.
Here is another occasion where the IRS is biting the hand that feeds it. In an attempt to collect every dollar it feels it is owed (and to leave no stone unturned to find more of those “owed” dollars), it will leave in its wake many important organizations that will no longer be able to function, including historical societies, community theater, and community outreach programs. That’s right, the IRS isn’t going after tax cheats, they’re trying to squeeze money from organizations that can barely afford to survive.
Your taxes have been filed. You sit back and relax, and maybe even wait for an overpayment refund. All seems right with the world. But then you get something strange in the mail. A letter from the IRS but you think there must be some mistake: You owe them MORE; or, you get back less than you were expecting.
What should you do? Some might accept it as their unlucky situation, as if their tax return was a slot machine and it came up as three different symbols instead of the 3 lemons you were expecting. I suspect the IRS is banking on this. After all, they are the faceless, bureaucratic giant and you are the lowly person afraid that you’ll open Pandora’s Box of Audits if you say anything.
But you do have options if you don’t like what the IRS is dishing out. The IRS has a system in place for taxpayers to file appeals. It’s with the IRS Appeals office, which is a separate and independent office so you don’t have to deal directly with the people who worked on your return.
When appealing an IRS decision (including your refunds or other things like penalties, interest, trust fund recovery penalties, offers in compromise, liens and levies), you should pull together as much information as you can in order to support your case. And, when appealing, you can represent yourself or have representation from a tax attorney.
