Category: Taxes

So, let's say you've ignored the red flag I waved the other day. You want to be a landlord despite the mountain of aggravation I went to so much trouble to describe.

Okay, let's get down to some of the nitty-gritty financial issues. But first a caveat: These matters are terribly complex, and I'll offer just a bird's-eye view that misses lots of exceptions and special circumstances. Taxes are a nightmare, and you should study IRS Publication 527.

The Dow Jones Industrial Average is on its way to posting another triple-digit gain Monday, as more encouraging data on the housing market boost hopes that happy days are here again for the U.S. economy.

Tell that to state governments.

State tax revenues have been in a freefall over the last year -- the steepest drop in tax collections seen in more than 50 years. Overall state tax revenues dropped 10.7% in the third quarter, compared to the same period a year earlier, in the 44 states providing tax data to the Nelson A. Rockefeller Institute of Government at the State University of New York. (Find the complete report here.)

Come January, millions of Americans will be allowed to open tax-free Roth retirement accounts, due to repeal of a longstanding rule that prevented "Roth conversions" by taxpayers earning more than $100,000 a year.

Shifting money from a traditional IRA, 401(k) or similar plan to a Roth can be a profitable move for many, but a money-loser for many others. It's worth thinking about now because you may need to scrape up quite a bit of cash to pay tax on a conversion if you conclude that's the right move.

First, a quick refresher: Roths are a form of individual retirement account that has been around since 1998. There is no tax deduction on contributions, but all withdrawals are tax free, including investment gains. Also, you're not required to start taking money out after turning 70 ½, as with traditional IRAs and 401(k)s. (More details. Also see IRS Publication 590.)

Charles Schwab, the discount brokerage, made a bit of news this week by offering eight new exchange-traded funds, or ETFs. That wasn't such a big deal in itself, since the ETF business is booming with new offerings from just about every mutual fund firm and brokerage. But Schwab has upped the ante by allowing its customers to trade the house-brand ETFs for free - without paying the $12.95 brokerage commission for trading other types of stocks.

Now that's interesting. Commissions have been one of the few drawbacks to ETFs, because they can chew up accounts of investors who want to add modest sums frequently. That $12.95 is 6.5 percent of a $200 purchase, for example. You wouldn't want to pay that every month. With an ordinary mutual fund, as opposed to an ETF, you can buy and sell with no fee if you deal directly with the fund company.

If someone made me America's personal-finance dictator, I'd scrap the 401(k). These workplace retirement plans are inequitable, as some companies offer good ones, some bad ones and others none at all. Fees are often too high. And even the better plans often don't provide enough investment options.

Instead, I'd like to see the Roth IRA opened up to allow 401(k)-sized contributions - $16,500 a year instead of $5,000. (Or $22,000 and $6,000 for people 50 and over.) And I'd like to see the Roth's income limits lifted, so anyone could have one.

Roth's don't offer tax deductions on contributions, as 401(k)s do, but Roth withdrawals are tax free, while money taken out of 401(k)s is taxed as income, at rates as high as 35 percent. Most importantly, with a Roth you can invest in just about anything you want, not just a set of funds picked by the boss.

But since I'm not running things, the best I can do is suggest ways to make the traditional 401(k) work best.

My post on Tuesday dealt with selling money-losing investments by the year's end for tax reasons. It's a good idea, but doing so presents investors with a new dilemma: what to do with the proceeds?

That's easy: reinvest them - as soon as possible.

The hard part is choosing the new investment, and if you don't watch out you can get stuck with an unwelcome - but avoidable -- tax bill when you buy mutual fund shares late in the year - around now.

Today's topic: taxes.

Hey, don't click away so fast. Taxes -- for most people -- don't have to be as mystifying as they seem. And year-end tax moves can really save you money come April. Honestly. There are just a few basic things to keep in mind.

Don't get me wrong: tax issues can be very complex for the well-to-do, and for people who own businesses. But for most people - those of us whose tax bills come from ordinary income and a few investments - tax matters play only a small role in most financial decisions. The main concern is to be sure not to pay more -- or less -- than we owe when the day of reckoning comes. For the most part, tax issues influence when you will do things you're going to do anyway, like selling a money-losing investment or billing a customer for a freelance job.

AAs I blogged about this summer; I didn't cash in my clunker when Uncle Sam was offering $4500 to trash it. Part of the reason was that the dealers weren't making many deals. I suspect many potential home buyers are experiencing a similar phenomenon. Realtors in the DC area tell me people who can qualify for the tax credit are in bidding wars with each other over lower priced properties in their reach. Some realtors are cautioning their buyers not to worry too much about the credit, but to focus on if the home is really what they want. Buyers should make sure they can live with the home for at least three years, a sale before then means the credit has to be paid back.

When is a tax not a tax? When you call it a fee and don't charge it directly to the general public. The "Framework for Comprehensive Health Reform" proposal being circulated by Senate Finance Committee Chairman Max Baucus calls for a host of "fees" on the health care industry. Specifically, $2.3 billion a year (for 10 years) from drug makers, $4 billion from medical device manufacturers, $6 billion from the health insurance sector, and $750 million from clinical labs. The "fees" would be "allocated by market share," which experts read as a tax on revenues. Some of those costs may be difficult to pass on directly to consumers, but the companies would likely pass along as many additional costs as possible.

You can always hope people will change but it’s an uphill climb. Main Street wants to see change. That was the story of the election. It seems President Obama wants change. That’s why he made a point of going up to the Hill and adding to the stimulus package some distinctly Republican policies like tax cuts. But if change is in the air in the hallowed halls of Congress it’s not making much of a breeze.

Let’s start with the Democrats. They are flush with power, knowing that they can get just about anything they want. So what do the Democrats do? They dust off spending schemes which have been gathering mold since they lost control of Congress during the Clinton administration. The irony is that it really doesn’t matter where we spend government money. With consumers too shell shocked to spend, anything the government buys helps. But so much of the Democrats’ spending is on pork it begs for the squealing which is coming from the other side of the aisle. This bill is a lobbyist’s dream.