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Bardella & Associates702 Litchfield Avenue Sebastopol, CA 95472 Phone: 707-829-4800 Website Address: www.bardella.com Email Address: Bardella@bardella.com |
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You've heard. Congress wants to change this. In fact, a law may have passed by the time you read this.
Two filers get a combined standard deduction of $8,800 on their single returns, but get only $7,350 if they marry. Why not double?
Tax brackets make the hit worse as income rises. A single person pays 15% of taxable income up to $26,250. But a married couple's bracket is not twice as large - it ends at only $43,850.
Is this fair? True, the numbers vary from couple to couple. A sense of history will help here:
Case: Budding Romance.
50 Years Ago.
Two Can Live as Cheaply as One.
New Millennium Couple.
Now I'll ask again - Is this fair? Some couples still save on ajoint return, but most couples today face this "marriage penalty."
No Sure Cure. Current proposals look at the standard deduction and tax brackets. They will not solve the problem. Couples get burned in many other ways.
Many rules that are linked to filing status penalize couples. The rules on Social Security taxation, losses on rentals, earned income credit, and IRA deductions are a few. In some cases a divorce can lead to doubling these tax benefits.
There are more such rules, but you're getting the idea. Revamp the entire system, or we'll still have a marriage penalty. The changes
being tossed around will fix only a small part of the problem. Imagine putting a price ceiling on hot dogs then announcing you've made sporting events more affordable.
Sure - every little bit helps. But the problem won't be solved.
One thing is certain - I'll be sure to let you know of any important new rules in the Year-End issue. But for now, I'll keep my political opinions to rnyself!
In March IRS finished studying 1997 tax returns. They announced that the percentage of tax paid by the wealthiest of Americans increased for the 6" consecutive year. Here are the figures:
Be careful! The Census Bureau counts people - IRS counts tax returns.
Adjusted Gross Income (AGI). This is not quite the same as "income." It's the bottom number on. the front page of your Form 1040. Some income items are not included. For instance, Social Security income may be absent, or part of it may be included. Tax-exempt interest is not included. Your pension contributions and IRA deductions have been subtracted.
Surprised? Granted the numbers are not perfectly clear. But we hear so often that the wealthy do not pay their fair share. These numbers show something different. Makes you wonder who the "middle class" is!
1. Changed your address
Nothing sets the old knees to shaking like finding a letter from IRS in the mailbox. If you get a letter from them, please call me before trying to respond to them.
"10-Day" Myth. Most IRS letters contain a "deal with this in 10 days" notice. People instantly picture disasters - bank accounts seized, cars repossessed, teeth failing out. If we respond within 30 days none of your rights are lost. Even if you should owe IRS $1,000, the only difference between paying in IO days or in 3 0 days is about $5 in interest. It makes good sense to respond after we know the response is correct - not before.
Let's Do It Right. IRS may be kinder and gentler. But they are not your friends!
Authorization or Power of Attorney. The Privacy Act prevents IRS from talking to me about your case unless they have your written authorization. If I ask you to sign
The country is caught up in a frenzy over the stock markets. Activity is high. Many of you use the Internet for trading, Records,records,records! It is critical to keep good records. When there is a sale you must report it on your tax return. I need just 4 items - dates of purchase and sale, plus amounts for both. For dates, use the trade date, not the settlement date. For amounts, use the figures after all commissions. For example, suppose you bought I 00 shares of some stock at $60, then sold later at $95. What I'd like to see is:
If you use a broker, you must keep either the confirmation slips, or mark your monthly statement carefully.
W-2 Forms by Internet. IRS has announced a pilot program for early in 2001. Participating employers will inform employees by email that W-2 Forms may be downloaded from a secure web site. If the W-2 has not been viewed on the web site by January 3 1, it will be mailed.
Roth IRA Twist - Save For College. The Roth IRA offers no tax savings when you put money in. The benefit comes after you reach age 59 1/2 (if your first contribution was at least 5 years before). Do this and all the money is tax-free. That's your benefit - tax-free, growth.
Taking money out has special rules. If you have been making direct contributions (as opposed to rollovers), tax law says the first dollars you withdraw come from the contributions. Since there was no deduction when you put the money in, there is no tax or penalty when you take it out.
Suppose a parent begins putting $2,000 each year into a Roth IRA when a child is born. 18 years later the child enters college. $36,000 has been contributed. Up to $36,000 can be withdrawn without tax or penalty. Even if the parent is not yet 591/2. Plus - the account keeps growing. If you touch the earnings, there's a problem - but the contributions are deemed to come out first.
This won't work for a Traditional IRA. Each dollar you take out is presumed to be a mixture of both principal and taxable growth. But the dollars in a Roth IRA are "layered." Interesting.
Withholding Tune-up. Now that 2000 is more than half over, review the withholding from your paycheck. We did a rough projection of your 2000 tax when we did your 1999 return. How are things going? Does your withholding took about right to keep up with your tax bill? If it doesn't, we should talk very soon. You don't want a nasty surprise next year when it's time to file.
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