Patrick's Rants


“Unemployed” Romney Makes $21.7 Million

Filed under: Politics,Taxes — site admin @ 7:36 am

Have you seen the clip where Mitt Romney tells a down and out unemployed worker that he’s “unemployed too”? If I was raking in over $20 million dollars a year, I wouldn’t work either.
The whole GOP field is in the top 1%. Who do you think all those people are protesting?
Romney releases his $21 million income tax return At least Newt “works” for his millions (as indicated by his 30% effective tax rate vs. Mitt’s 14%)


The War on Incertainty

Filed under: Money,Politics,Taxes — site admin @ 6:26 am

Henry Blodget, writer for Business Insider, writes that the Republicans are idiots. He does more tamely state it though in his article, “Sorry, Republicans, The Economy Is Not Crappy Because Of “Uncertainty” About Taxes And Regulation”.

Read it and weep, John Boehner.


Flash of Brilliance

Filed under: Money,Politics,Taxes — site admin @ 5:02 pm

In This is What You Get I wrote

The so-called rich who supposedly created jobs, stuck their money in the stock market and reaped a 15% tax rate instead of starting businesses which would have been taxed at over 30% – higher if you count all the unemployment taxes, workers’ compensation, etc. See how that works? 15% versus over 30%, where would you put your money if you had it, start a business with all of the headaches or just put it into IBM stock?

which caused my mind to have a flash of brilliance – even if I do say so myself.

Here’s my tax plan: eliminate the reduced long term holding rate. See how easy that is? Of course you can’t just toss it right out the window, there has to be some kind of balance. Here’s my balance and my reasoning. Let’s use IBM stock from the quote as an example. If investors paid the same on net profits from businesses as they do for net profits on long term stock sales the negative tax consequence of hiring someone versus buying IBM stock goes away.

There has to be an exception of course and I think even Warren Buffett will like my idea. Drum roll please… allow lower tax rates on new stock issues or new company investments. If there are too many trees in this forest, let’s look around. If you buy 100 shares of IBM in the stock market you are not buying them from IBM and IBM gets no direct benefit from your purchase. In fact IBM may not have gotten any direct benefit from your purchase in years or decades1 when the shares were first issued. Let people who are willing to invest in startups or in new stock issues get a break similar to the small business stock break that true engines of the economy invest in. Let the stodgy investors have their IBM but give them no break for buying their shares from another shareholder.

So the following people would be on the same footing – tax-wise at least:

  • Small business owners who work in their business and hire people
  • Hedge fund investors
  • Old money families, living off the dividends and capital gains created by others
  • People receiving payments from their Traditional IRAs or other retirement plan deducted from taxable income at some point in the past2

I would leave the special treatment on government bonds alone. Ditto (whoops, Limpbaugh may try to sue me for using that word) the home sale exclusion. I say if you want reduced taxes from investments, loaning money to the government benefits everyone. If the rates on other investments rise, big money is more likely to seek non-taxed returns theoretically reducing the interest rate required to be paid due to demand.

Now, why did I write that Warren Buffett would like this idea? First, he’s stated that he doesn’t really think that it’s fair that he pays a lower rate than his administrative assistant. Second, he has infused GE (and others) with direct capital (taking out warrants and preferred stock) and would under these rules still benefit from lower tax rates since he has purchased his stock directly from the company.

So is it brilliant or what? I wonder if Obama or McCain read this blog?

  1. Of course the value of the shares boosts IBM’s ability to borrow money and issue bonds which admittedly does benefit IBM
  2. Who get screwed under the current system because their stocks and bonds and dividends are treated the same tax-wise as wages. They would still be treated as wages, but everyone else in the stock and bond boat would be taxed the same.

I was going to run all the calculations on owning IBM stock, but the sun is getting low in the west and I’ve real work to do.


The Tax Debate

Filed under: Money,Taxes — site admin @ 7:56 pm

When you hear the “families making more than $250,000.00” as the threshold for potential tax cuts what do you think? Do you think that means that they earn $250,000.00 and then subtract their home mortgage and charitable donations? You would be wrong. You would also be wrong if you thought Joe the Plumber was upset about the potential to gross $250k and have to pay taxes on all of it.

You would be wrong if you believe the argument that taxing those making more than $250k would reduce hiring or small company spending. The truth is that whatever you spend your company funds on – as long as it’s ordinary and necessary – reduces your tax bill. Let me restate that. Any small company owner that says they are holding off on hiring because of the potential for their tax bill to go up – on taxable income (taxable meaning the part that’s left over after paying business expenses) – is disingenuous, a liar, uninformed or perhaps greedy.

Here’s a simple example: company A (a pretty small company) grosses $30,000/month in retail sales. Assuming a markup of 30% approximately $23,000 goes to inventory. Cheap rent might be as low as $500.00 for a smallish shop; utilities maybe another $150. That leaves $6350 in the shop owner’s pocket. Subtract a barely over minimum wage full time employee (assume the owner keeps whatever is left) at around $2,000/mo and business insurance and there’s only $4350 left. I’m not counting a lot of business expenses that the owner could have, but you can see how this business that grosses $360,000 year leaves the owner with $48k/year. Guess which tax bracket this owner is in? If s/he’s married and has a child, next to nothing.

To be left with over $250k taxable income you aren’t talking about most people’s idea of a small business anymore. You aren’t even talking about Congress’ idea of a small business anymore.

Let’s look at Joe the (lying) Plumber’s business. (more…)


Intel lookback

Filed under: Money,Stocks,Taxes — site admin @ 10:08 am

I wrote about using the low stock prices at the beginning of this year to lower your taxes a little and to lower how much you have “at risk” in Intel (INTC). If you had followed the 100 share strategy I mentioned in March here’s what would have happened.
First, let me arbitrarily pick June 1, 2007 as your original purchase date. INTC closed at $22.36. For simplicity I’m going to use the close price of the day. I’m also going to ignore the August 3, 2007 dividend (simply because I haven’t checked the ex-dividend date. I will count the intervening dividends)

  • Purchase 100 shares of INTC June 1, 2007 = $2,236.00 (plus commissions, discount brokers will run around $10, others will run as high as $50-$75)
  • November 5, 2007 dividends of $0.113 = $11.30 added to your account (using the discount broker you just made back your commissions)
  • February 5, 2008 dividend $0.128 = $12.80
  • May 5, 2008 $0.14 = $14.00
  • August 5, 2008 $0.14 = $14.00
  • November 5, 2008 $0.14 = $14.00
  • February 4, 2009 $0.14 = $14.00
  • May 5, 2009 $0.14 = $14.00 (only counting 100 shares worth of dividends, the ex-date timing could have doubled that)

If you had read the article on March 4, and decided that I wasn’t crazy, you could have bought your new 100 shares for $12.31 = $1,231.00. Holding the shares for around 35 days, you would have sold your “first in” shares on June 5, at $15.92 at the close $1,592.00. This gives you a $644.00 loss based upon the original purchase price on June 1, 2007. In a couple of transactions you have lowered your basis – or purchase price – in INTC, thrown off some beneficial tax losses and kept the same number of shares in your account. The long term capital loss over $3,000.00 can be applied to gains if you had them or carried forward for when you do have them.

Plus there’s almost $700.00 of dividends up there, so if you are using that cash for your new purchase your new shares only cost around $600.00.

Disclaimer: I don’t own any shares of INTC and I don’t sell stocks


Some Stock Tips

Filed under: Money,Stocks,Taxes — site admin @ 9:10 am

Investment tips really. Here’s how to save a little bit of money on your taxes if you hold stocks in a taxable investment account (not a retirement account) First you have to have a little bit of cash, a little bit of patience and a belief that the stocks you own are worth owning. It also helps to use First In First Out(FIFO) accounting or sell specific shares but that’s not required.

I’m going to use Intel (INTC) as an example. Intel is trading at or near a 5 year low at $12.65 (at the very moment that I’m writing this). If you own INTC that was purchased at any time before the middle of 2007, you’re in the red. I want to add that you haven’t lost anything, that is unless you have sold. You only lose when the stock becomes worthless or you sell. Back to INTC. If you held it through the downturn, you probably like it – or you got caught off guard by the near free fall in the price and aren’t sure what to do next.

What you can do depends on how much cash you have. If you have enough cash to purchase an equal number of shares of INTC, then that’s what you do. If you had 100 shares, buy another 100 shares. That’s around $1265.00 plus commissions. Now you leave those 200 shares alone for the next 30 days – to be safe give it 35. Then you sell 100 shares using the cash for the next stock in your portfolio. Because you sell shares using FIFO or designate specific shares (this usually requires talking to a human broker and might cost you more in trading costs, but it’s worth it if you don’t use FIFO) the shares you sell are the ones that cost $25.00 giving you a per share loss of $12.00 to $13.00. I’m assuming that the price stays the same as today. But even if it moves around a bit the reason you owned INTC in the first place was because you liked the stock, right? In a taxable account you have a $1200.00 to $1300.00 loss to use against any gains you might have. $3000.00 can be applied to other income on a yearly basis and carries forward until used up.

If you don’t have enough cash you are almost betting that the stock stays around where it is now, or even goes down. Without the extra cash in your account you will have to look over your holdings a little more closely. Sell the 100 shares INTC today and sit on the cash for the 35 days and maybe earn a touch of interest. Then you buy 100 shares INTC. You still get the same loss as above, but with less certainty about your new purchase price.

The reason I give the 35 day figure is due to what the IRS calls the Wash Sale Rule. This basically means that you can’t claim you lost money on a capital transaction (the most familiar of which is stocks) if you buy the same or “substantially similar” stocks within a 30 window before and after the sale at a loss (this means approximately 62 days)

Of course, if you have many holdings this is a technique that can be “cascaded” over your entire holdings. If you hold five or six stocks you might look over them to see which companies look the “worst” to you ie. what will take the longest to recover? If you have no cash in your account, sell the “worst” of your holdings to purchase the stocks you eventually want to have. Sale of stock a gives you the cash to double up on stock b, then the sale of stock c gives you the cash to double up on stock d. You still have to watch the wash sale clock, but once the time is up, lather, rinse repeat until you have banked a decent carry-over.

Oh, and whatever you do talk to your Enrolled Agent, CPA, and stock broker if you have any questions about how this will and can affect you. And whatever you do, don’t leave your tax preparer in the dark unless you really understand what this does for your 2009 taxes.

Disclaimer: I don’t own any shares of INTC and I don’t sell stocks

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