Posts Tagged ‘tariffs’

My Tax Plan If I Were President

Taxes laws are a mess. I have solutions to simplify taxes and lower rates. Using humor, I share tax tips for deductions for individuals and small businesses. I also address the politics behind such required changes. #wealthyaccountant #taxhumor #taxdeductions #taxtips #smallbusiness #funny #politics #presidentIf you’re reading this the day it’s published it means this is the due date for extensions for partnerships and corporations. If you work in a tax office and things are quiet you might want to consider another job. (This is an inside joke directed at a former employee who struck out on her own. If you need bookkeeping in Vegas I know a qualified person to handle that. Seriously.)

I thought today would be the perfect day for me to announce my candidacy for president with a few tax policies I’ll sign into law via executive order if elected. Some of you might be darn excited about this unwelcome event as you think I’m a Democrat. Other might be excited because they think I’m a Republican. The truth is I’m neither. I prefer to waffle between both side of the aisle or as the police call it: walking in a drunken stupor.

As much fun as I’m going to have writing this, I am also dead serious. What follows are tax policies I would like to see instituted. Some things will sound very liberal and some things will sound downright conservative. Basically, I should tick off just about everyone in the room with something.

Welcome to politics.

Ground Rules

Before we start I want to point out some things I plan as president are not completely tax related. For example, I will deal with the minimum wage, but connect it to tax policy. The same with welfare of every kind. Along the way I’ll fix the health care issues of the United States by default and solve trade issues and immigration policy in a way everyone will love until I’m elected. Then a third will love me and two-thirds will hate me until we approach the next election. Then the population polarizes and it ends up a dead heat until I’m assassinated re-elected.

Tax policy controls everything. Al Capone gets away with murder until they called in the Treasury Department. (It worked!) Welfare once required a trip to Social Services. Now it’s handled at the tax preparer’s office. Corporate welfare is even worse.

Trade disputes sometimes result in tariffs, an excellent way to tax your own people while convincing them it punishes the other country. (Don’t underestimate the ignorance of voters.) Once again important issues of national importance end up in a tax bill.

So, let’s get down to business. I’m confident I’ll win your vote.

Simple and Basic

With the exception of my own profession, everyone should love the basic framework of my tax plan. Republicans lowered tax rates to the lowest level since taxes were collected in this country. And I think they’re still too high!

For individuals and families: I propose to raise the standard deduction to $100,000 for joint returns; $75,000 for head of household returns; and $50,000 for single taxpayers. That means a married couple filing jointly can enjoy their first $100,000 of income tax free! (I know! It makes me giddy too.) Exemptions were eliminated with H.R. 1 and I don’t want to rock the boat so all you guys get is a huge standard deduction. In fact, itemizing is gone! If a hundred grand tax-free isn’t enough to stay solvent there isn’t a thing any politician can do to help you.

7 ways your taxes should be lowered. Tax humor might be funny, but also illustrates how taxes must be lowered. Find tax tips and deduction for individuals, the self-employed and small businesses. #wealthyaccountant #politics #president #taxplan #taxhumor #deductions #smallbusinessAs for tax brackets, people like the idea of a flat tax. I propose two brackets so my peers at least have an outside chance of staying in business: 20% and 50%. After the standard deduction, the next $400,000 is taxed at a flat 20%. All income above this level is nailed at a 50% rate with nary a deduction available to reduce the tax.

I hear the howls of protest, my tax obsessed readers. You think President Accountant will bankrupt the nation with such a plan. Au contraire. To pay for this simple tax plan all the welfare tax credits are nixed. The Earned Income Credit: gone. The Child Tax Credit: gone. Savers Credit: nope. Education credits: huh? No, no, and no. No more handouts on the tax return. Let’s turn the tax office back into a tax office and not an unpaid extension of the welfare department of the government.

Also, all income is taxed at the same rate. No more special rate for qualified dividends or long-term capital gains.

Poor people need not complain. The Earned Income Credit was designed to compensate low income workers with a kickback of their FICA taxes. In my tax plan every worker gets the first $20,000 FICA tax free. If you work you get an instant EIC on your paycheck.

HOWEVER. . .

Social Security taxes now are like the Medicare portion of FICA: paid all the way to the sky. And FICA applies to ALL income: dividends, interest, capital gains (long- and short-term) and more. A sports star gets a $20 million bonus. Good for everybody! A CEO of a public company enjoys a windfall of stock options? Good for everybody. The Social Security and Medicare financial problems are solved.

If you think about it (I have) the reduction in tax credits more than offsets the massive standard deduction increase. We may have to institute another round of tax cuts or risk paying off the national debt.

I see fear in the eyes of business owners. Don’t worry. I thought about you guys, too.

Business Taxes

This crazy new tax deduction for qualified business income is insane. All it does is increase complexity in the tax code, lining the pockets of tax professionals and attorneys practicing in tax law. In my plan the QBI is gone.

WAIT!

Don’t shoot! I propose a better solution. Businesses will enjoy their own standard deduction of $1 million. That’s right, my Republican friends, every small business owners will enjoy their first million tax-free on top of their generous standard deduction.

Big business is sweating right now, worried I’ll fill the Treasury at their expense. No way! As a gift for funding my political campaign you get the same $1 million standard deduction, plus a flat tax rate of 15%. You heard that right. The Republican plan of 21% is still waaaaay too high to compete internationally. We will start at 15% and reduce the rate 1% per year until it hits 12%.

Oh, don’t be sad, my liberal friends. To pay for this tax cut we will cut corporate welfare the way we did for individuals. If you think welfare to people is costing taxpayers, you haven’t added up how many handouts are lining the pockets of super-rich corporate executives. Those handouts will be eliminated completely.

To prevent small businesses and the big guys from gaming the system, all businesses controlled by a group only get one $1 million dollar business standard deduction only. In other words, you only get one million dollar deduction per investor. (And you guys thought I didn’t give this adequate thought.)

Tax System

The U.S. is one of only a few remaining nations taxing on a worldwide system. My plan brings us in line with the world by switching to a territorial tax system, where only profits from inside the U.S. are taxed. The tax rate for profits outside the U.S. is 0%, giving a major competitive advantage to American companies operating abroad, something they have to dance around now to compete with other nations. That alone could resolve half the trade deficit.

Americans working abroad would not be taxed unless they earned the money in the U.S. The Foreign Income Exclusion would be obsolete with President Accountant.

To prevent games, corporations could not shift profits outside the country. Strong measures will be in place to avoid such a practice with a 10,000% penalty for offenders. (You’re getting an awesome deal. Don’t get greedy!)

Foreign companies that want to sell in the U.S. would also pay U.S. taxes for their profits earned in the U.S. (Where ya gonna get a fairer deal than that?)

Trade Wars

This is just plain stupid. Tariffs are a tax on your own people! I would open the door to trade with all tariffs eliminated. If other countries don’t follow suit, fine. They can tax their own people more. All the better for our economy.

Looking for a fair tax plan? Then I know the perfect guy to vote for! Taxes are a mess is desperate need of organization. #wealthyaccountant #taxplan #tax #taxes #taxhumor #funny #deductions #creditsThe U.S. and its businesses whine endlessly about free markets. Well, trade wars and tariffs are the exact opposite. Compete or go broke. Under President Accountant we will allow markets to decide the winners and losers.

The one issue we have a right to complain about is the theft of intellectual property. (I’m pointing at you, China.) Our current president has a point on trade issues with China and a few other countries. Policies that strip intellectual property from U.S businesses will be dealt with harshly. If it is determined (China is the worst offender here) that theft has taken place, the government of the country where the offending company resides must compensate for losses and prevent such theft. If the government of said country can’t regulate their own people that country is barred from selling any goods or services in the U.S. until they govern responsibly. No more stealing our stuff and using it to sell against our own hard-working business owners.

The details are more than I can publish right now, but trust me. It’ll be great! The best trade plan this country has ever seen.

Health Care

It is repugnant that the wealthiest nation on the planet can’t provide basic medical care for all its people when other nations do just that. Therefore, I will sign an executive order my first day in office expanding Medicare to cover all U.S. citizens from Day 1 to Day End. No more Medical Premium mandate needed. If you want more than basic coverage; buy additional coverage. There is no additional deduction and businesses are not allowed to provide more health coverage to employees. Businesses are out of the health care business from now on (unless they are a medical business).

To pay for this basic benefit the Medicare portion of FICA will be increased 2%; half paid by the employee and half by the employer. All income, including dividends, capital gains and interest, will pay the additional FICA tax. And remember the FICA exemption above. Nobody gets hurt.

I hear my conservative friends complaining already. “We need to keep government out of our conversations with out doctor,” you say. I agree. Let’s keep your employer out of it, too. I for one am sick to death of telling my employees what kind of medical care they can get. Unless I’m a doctor or hospital, I’m out of the health care business and devoting all my time to my business, which is what I’m good at and the reason I started my business.

Minimum Wage

Is that grumbling I hear at the back of the room? No worries, my liberal friends. Under President Accountant the minimum wage will be abolished! You heard me right. Now holster your weapons.

The reason I’ll eliminate the minimum wage is because if we have a minimum wage to increase the number of jobs, then it stands to reason we must have a maximum wage to create more jobs. Don’t hear that argument too often, do you?

Eliminating the minimum wage will not put you at risk. Your favorite president will guarantee you see $15 per hour minimum on your paycheck each and every week. Rather than force companies to pay a minimum wage, there is a special tax for every hour any employee earn less than $15 an hour. That special tax is 20 times the amount your employee paid under $15 per hour.

I bet there will be no companies paying less the $15 an hour right quick.

Yes, businesses will be encouraged to automate with higher wages. But when has increased productivity been bad for a society? You get more for less. And with the new standard deduction and Medicare-for-all programs you will have a secure safety net.

There will be slightly fewer jobs, but they will pay better. Do I have your vote yet?

Under Cover

There is a lot to love by both sides of the aisle with my plans. Unless you are a tax professional you probably like my proposals.

It is unlikely I’ll actually be elected. Rumor has it a stark-raving mad crowd of accountants are approaching the Accountant farm as I write. With such a simple tax code with no loopholes, tax professionals are out of business. But then again, what did we produce? We manipulated a system created by man with no logical connection to reality. Very unproductive.

HUH!?

Was that gunfire?

 

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A cost segregation study can save $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 

Profiting From the Next Recession

Rare is the decade where a capitalist society doesn’t experience an economic slowdown. Call it a soft landing, recession or depression, the results are the same with varying degrees. Economic slowdowns and declines are inevitable under capitalism.

Expansions are born from the depths of the previous economic decline. Inflation tends to be low and unemployment high. Pent up demand is waiting for an influx of goods and services to satiate desires. As businesses whittle down inventory, the recession eases. A glimmer of increased demand begins the cycle all over. Employment increases to meet demand. Eventually wages climb as the labor market tightens.

Increasing productivity means even a slowdown in growth can start unemployment ratcheting higher; no actual recession needed to send hearts aflutter. Sometimes the economy slows sharply as in the early 1980s and 2008. Most recessions since World War II have been mild, with GDP declining 2% or less. The 2008 recession lasted 18 months and it felt like the world would end. In reality, GDP declined 5.1%. The 2001 recession, in comparison, lasted 8 months with a .3% decline in GDP.

The last time economic activity declined more than 10% was in the waning days of WWII. Reduced military spending caused the GDP to dip 12.7%. Unemployment didn’t climb much in 1945 as the U.S started the switch back to a peacetime economy. Before WWII, recessions more often than not exceeded 10%. Economic downturns were far sharper in those days and lasted longer. Still, unemployment can climb quickly to double digits or nearly so. When pink slips start flying they come fast and furious.

The longest economic expansion on record started March 1991 and continued for a full 10 years, ending March 2001. The current economic expansion started June 2009. We are nearing another record long period of economic nirvana.

Long periods of economic bliss lull people into a false sense of security. Debt grows larger as a percent of income as households are more confident.

Inflation is creeping higher. The Fed is slowing increasing interest rates to reflect a normalization of interest rates after the deep 2008 recession. Unemployment is near record lows and employment numbers are off the scale! Warning signs are beginning to show as consumers are reaching their credit limit, ending the buying binge. The cycle is nearing the point of renewal.

Renewal is painful if you’re unprepared.

Signs

Overproduction and debt usually play a role in most recessions. U.S. production isn’t as out of touch with demand as world production, most notably in China and Germany. However, by previous economic standards, the economy isn’t stressed enough to trigger a downturn of any size. Things look really good right now. But. . .

Tariffs are the wildcard. Tariffs are designed to slow the economy, regardless the claims of politicians. Business is well aware of the seriousness of the current rush to impose tariffs. Tariffs also push inflation higher.

Signs are showing in the EU, China and other countries. The U.S. so far is humming like a well oiled machine. If tariffs continue ratcheting higher the U.S. will eventually stumble, too.

Tariffs are taking on a different flavor this time around. (This time isn’t different, however.) In 1929, tariffs were adjusted across the board. Retaliatory tariffs were levied nation against nation around the world. Today we see the U.S. imposing tariffs and the target nation strikes back with narrowly focused tariffs against the U.S. only. Without the U.S. a vacuum has formed. Most nations are building new economic alliances without the U.S.

There is no doubt tariffs will cause pain around the world. The U.S. already discovered how the new world order of tariffs will be played out. Harley-Davidson, an iconic American company, is moving some production to Europe to avoid tariffs. If the intension of the tariffs was to bring jobs back home, it’s having the opposite effect! Time will tell how this new world order plays out.

Doomsday Preparations

The world isn’t going to end! You can drop the end of the world stuff right now. However, there is economic pain coming. The exact cause is not yet known. The possibilities discussed about are strong possibilities. Then again, it could be something totally out of left field, like Lehman Brothers in 2008. You never know.

What we do know is that this cycle is long in the tooth and it’s time to prepare for the inevitable slowdown in economic activity, even if it doesn’t culminate in a full-blown recession. Unemployment will climb someday and probably sooner than most people expect. If tariffs bite as they did in the past, we could be within a year of slower economic growth.

Since my crystal ball isn’t any clearer than yours, all I can do is provide good advice that works in good times and bad. Wealthy people have certain habits you need to acquire ASAP!

For several years now I’ve warned clients to reduce, or even eliminate, debt. The 2008 recession only hurt if you were saddled with debt payments. Without debt, 2008 was a minor inconvenience. Debt is a common recession culprit. Don’t be part of the problem! Your insistence you are responsible with debt crumbles when unemployment makes an appearance in your household, your income properties are vacant or the tenants refuse to pay, or your business or side hustle no longer provides the cash needed. I hear the “responsible with debt” mantra often. I’ve also been around long enough to watch said clients have their home repossessed.

Debt is the most important issue to address. If you are deep in debt, there are steps you can take to reduce liabilities fast. Normal pay down of debt may not be fast enough to give you a margin of safety before the recession strikes. Prices are still high. Selling assets at a high is better than liquidating later at any price, or worse, giving assets back to the bank.

I firmly believe you should NEVER have debt on a vehicle. EVER! If you need a car loan you can’t afford the vehicle. If you bought real estate the last few years, consider reducing debt by selling highly appreciated properties. I know real estate never declines in value (egads!), but selling a property or two to eliminate debt obligations allows you to sleep better in any economic environment.

Here is the last word on debt; I promise. All consumer debt must go! No credit card debt! Period.  Now is the best time in a generation to reduce debt. Your assets are worth more now than in decades. Take advantage of your great fortune.

Rainy Day Fund

I’m now going to share advice I give to all clients near, entering or in retirement.

Retirees need to keep ~ two years of spending in a liquid account (money market (I like Vanguard), Discover Savings, Capital One 360 or T-bills). If the market keeps rallying, take living expenses from your index funds. If the market declines, use the liquid funds to live on. Divert capital gains and dividend distributions to the liquid account instead of reinvesting. This gives you a margin of safety of several years before you’d have to either reduce your lifestyle or sell index funds in a down market to cover living expenses.

For those not in—or near—retirement, the same philosophy applies. Rather than two years of living expenses in liquid funds, you may wish to only keep one. In a perfect world you would have Roth IRAs so there would be no tax consequences of moving some index fund money to the money market account.

Facts and circumstances will determine the correct level for you and the accounts you increase liquidity in. Having liquid funds to cover living expenses is a powerful tool to weather any economic storm. The only issues not covered are outliers. An uninsured medical emergency can throw any plan awry. Disability is another potential problem. It’s impossible to cover all possibilities. Having a cushion, a margin of safety, stacks the deck in your favor.

A Hard Man to Break

I don’t predict the economy or the stock market. Far better than me try and fail miserably. This isn’t about market timing! This is about structuring your finances in an appropriate way.

Debt is the worst cancer. Debt is a crisis, especially this late in the business cycle unless you think this time is different. (It’s not!) Low debt levels are always the better path. Virtually every wealthy person you meet says the same thing: leverage (debt) bites you in the end.

Keep adding to your retirement accounts. This is not the time to break a good habit. If you don’t have a lot of non-qualified (non-retirement) money you may have to keep some IRA or other retirement money liquid. If your finances are not affected, no problem. If you do face financial stress you at least have liquid funds available (even if a tax penalty applies) to cover living expenses for an extended period of time without the bank knocking at the door.

Opportunities are created in recessions. The U.S. has had 49 economic downturns in its history. We get to celebrate the grand ol’ 50th with the next recession. Limited debt and liquid funds for spending needs allows you to keep your money invested for the next inevitable economic expansion. The winners of the last recession were the ones who stood pat or even bought while the market was down.

Things have to get really bad for people without debt to suffer. A liquid nest egg coupled with no debt requires a complete system failure before you feel any real pain. And if the system does fail there is nowhere to hide so it doesn’t pay to prepare for it. It’s lights out.

 

More Wealth Building Resources

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

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