[Rhodes22-list] Tax Advice?

Brad Haslett flybrad at gmail.com
Sun Nov 12 15:58:50 EST 2006


Bill,

You are correct for the most part.  One thing you may have overlooked is the
$250,000 capital gain on primary home sale exclusion ($500,000 for married
couples) and property tax relief efforts in some states.  Tennessee just
passed Amendment 2 which freezes property taxes at age 65.  Other states
will or should follow.

The whole idea that real estate prices will rise on an escalating basis
never made since to me from the beginning.  They will rise modestly over the
long term, and they do rise astronomically in some markets in the short
run.  Where they rise quickly they can also fall quickly. Anyone who delves
into creative financing, basically speculating in real estate for a quick
buck, is playing "musical chairs".  The record just stopped playing.  Paying
off one's home before retirement may not be sexy but it still makes good
sense and you sleep better at night.  We've enjoyed a long run of unusually
low mortgage interest rates and that too shall pass.

For most people who have an employer sponsored 401K, it is one of their best
values.  They get an employer match (quite generous in some cases), low
management fees, and fiscal discipline forced on them.  There hasn't been a
defined benefit retirement plan started at a major corporation in over five
years and the remaining ones are in danger.  Ask some of your local Wal-Mart
greeters.

As to your 'tax cuts now-more tax later' comment, it was working through
2005.  I haven't seen the 2006 numbers.  Here's an article from the NYT's so
we know it must be right!


http://www.nytimes.com/2005/07/13/business/13deficit.html?ei=5090&en=a410f8c74d4700a5&ex=1278907200&pagewanted=print

Ironically, the Times parrots much of what I've been preaching about the
future of SS and Medicare but it was coming from Democrats.  My, my, what a
difference a year and a shift of power makes!

Brad


On 11/12/06, Bill Effros <bill at effros.com> wrote:
>
> Philip,
>
> Yes, that is the assumption.  But I think that due to inflation and my
> assumption that taxes within brackets will have to be increased, I think
> you would pay far less now if you withdraw money that has already been
> taxed, than wait until later and pay a higher rate on a greater amount.
> (The tax cuts were passed based on this assumption--less tax collected
> currently, more tax collected later.)
>
> Houses are not getting paid off any more--Hank's thread.
>
> Property taxes are soaring--there are things we all agree must be
> provided--schools for the young, military protection for all, promises
> made to older people to encourage them to retire.
>
> Some people will lose the ability to retire in the manner they thought
> they could retire.  This is already happening.  Ask the greeters at
> Wal-Mart.
>
> When I was a kid, the maximum interest allowed by law was 9.9%.  People
> were thrown in jail for a long time for charging the interest rates now
> common.  No one can pay back at these rates.  People lose their homes.
> They used to go bankrupt, but even that has become difficult for the
> common man.
>
> So they are forced to sell their biggest asset, on which they paid
> little or no depreciable taxes as it appreciated, at a higher tax rate,
> on a greater amount, in order to pay back the money they have already
> spent.
>
> I don't think a lot of people will be able to hold their homes until
> death due to tax rates and interest rates that will be impossible to pay
> by people with fixed or declining incomes.
>
> To a large extent this will be their own fault, but each of us doesn't
> have to be among the members of this group if we start to think a little
> bit differently, and make preparations for things I think are almost
> inevitable.
>
> Bill Effros
>
> Philip wrote:
> > Bill,
> >
> >    Regarding item #3.  Isn't it assumed that once you retire and begin
> > drawing an income from your 401K your overall taxable income will be
> less
> > than it is during your working life.  Some of that assumption is that
> people
> > retiring don't spend as much because they already paid off their houses
> and
> > don't incur the expenses of working (commuting and such)?
> >
> > Philip
> >
> >
> >  -----Original Message-----
> > From:         rhodes22-list-bounces at rhodes22.org
> > [mailto:rhodes22-list-bounces at rhodes22.org]  On Behalf Of Bill Effros
> > Sent: Sunday, November 12, 2006 11:13 AM
> > To:   The Rhodes 22 mail list
> > Subject:      Re: [Rhodes22-list] Tax Advice?
> >
> > Slim,
> >
> > In terms of taxes my situation at your age was similar to yours, except
> > that I was selling computer consulting.  Here is what I did, it was a
> > successful strategy:
> >
> > 1.  Never cheat on taxes!
> >
> > 2.  No matter how much you make, you can't make enough, simply selling
> > your labor, and you can't keep enough, no matter how much or little you
> > make, because of taxes.
> >
> > 3.  Defer as much tax liability as possible without using the strategies
> > most people use--401Ks; Keoghs;  Roths; Insurance plans.  (I have been
> > deferring taxes for my entire working life, without ever expecting that
> > a political shift would so alter the tax structure that I would never
> > have to pay taxes at all--yet that is just what happened.  I think 401Ks
> > etc. are a bad bet because I think you are now deferring taxes from a
> > historically low tax paying time, to a time when you will pay more taxes
> > on what you withdraw later than you will if you pay your taxes now.)
> >
> > 4.  If you are healthy, get medical insurance with an enormous
> > deductible.  I pay all my medical bills, however I never have to worry
> > about dying for lack of funds--my health insurance will cover that.  I
> > probably pay less for medical expenses than anyone else on this list (if
> > you count as salary the amount large companies are paying for their
> > employees' health insurance, and the amount the government pays for some
> > people.)
> >
> > The exact strategies I used won't work again--you must find a new set of
> > strategies for the current time; but the principles remain the same.
> >
> > Bill Effros
> >
> >
> >
> > Slim wrote:
> >
> >> My company pays taxes.  I run a company of one.  I'm the chief, cook
> and
> >> bottle washer.  I file as a self-employed independent contractor and
> pay
> >> taxes every year.  I'm sure I could find a crooked accountant to figure
> >>
> > out
> >
> >> how to show a loss every year.  Am I being stupid not to?  Is it worth
> >> looking over your shoulder for the next 7 years?
> >>
> >> I could form a S-Corp and avoid some taxes and other liabilities and be
> >> eligible for group health but there's some up-front expense that I'm
> not
> >> sure I'm ready for.  I don't know.
> >>
> >> I invest in my SEP IRA (mutual funds) and also my ROTH IRA.
> >>
> >> Any advice?
> >>
> >> Slim
> >>
> >> On 11/11/06 9:28 PM, "Brad Haslett" <flybrad at gmail.com> wrote:
> >>
> >>
> >>
> >>> MJM,
> >>>
> >>> You are correct.  Companies don't pay taxes.  They build the cost of
> >>>
> > taxes
> >
> >>> in to the cost of their goods and services and the consumer pays the
> >>>
> > taxes.
> >
> >>> When companies distribute profits, the shareholders (who are the ones
> who
> >>> pay taxes to begin with) are taxed again.  It really is that simple.
> >>>
> >>> Brad
> >>>
> >>>
> >>> On 11/11/06, Michael Meltzer <mjm at michaelmeltzer.com> wrote:
> >>>
> >>>
> >>>> There is a simpler problem, the only people who will pay taxes will
> be
> >>>> people with w2 income, everyone else including the company will
> figure a
> >>>> way
> >>>> out of it. It really that simple
> >>>>
> >>>> -mjm
> >>>>
> >>>> -----Original Message-----
> >>>> From: rhodes22-list-bounces at rhodes22.org
> >>>> [mailto:rhodes22-list-bounces at rhodes22.org] On Behalf Of Philip
> >>>> Sent: Saturday, November 11, 2006 8:59 PM
> >>>> To: The Rhodes 22 mail list
> >>>> Subject: RE: [Rhodes22-list] Taxes.
> >>>>
> >>>> Bill,
> >>>>   Not distribution but re-distribution.  I don't like anyone taking
> from
> >>>> me
> >>>> to provide to others.  That should be charity.  I like to enjoy the
> >>>>
> > fruits
> >
> >>>> of my labors, and I resent others enjoying the fruits of my labors
> when
> >>>> they
> >>>> are not entitled to them.
> >>>>
> >>>> Philip
> >>>>
> >>>>
> >>>> -----Original Message-----
> >>>> From:   rhodes22-list-bounces at rhodes22.org
> >>>> [mailto:rhodes22-list-bounces at rhodes22.org]  On Behalf Of Bill Effros
> >>>> Sent:   Saturday, November 11, 2006 2:37 PM
> >>>> To:     The Rhodes 22 mail list
> >>>> Subject:        Re: [Rhodes22-list] Taxes.
> >>>>
> >>>> Philip,
> >>>>
> >>>> It's always a distribution of wealth issue.
> >>>>
> >>>> Bill Effros
> >>>>
> >>>> Philip wrote:
> >>>>
> >>>>
> >>>>> I don't mind paying my fair share and I don't care if it is going to
> >>>>>
> > the
> >
> >>>>> Constitutionally authorized appropriations.  I resent paying when it
> >>>>>
> >>>>>
> >>>> becomes
> >>>>
> >>>>
> >>>>> a distribution of wealth issue.
> >>>>>
> >>>>> Philip
> >>>>>
> >>>>>
> >>>>>  -----Original Message-----
> >>>>> From:         rhodes22-list-bounces at rhodes22.org
> >>>>> [mailto:rhodes22-list-bounces at rhodes22.org]  On Behalf Of
> >>>>> R22RumRunner at aol.com
> >>>>> Sent: Friday, November 10, 2006 2:37 PM
> >>>>> To:   rhodes22-list at rhodes22.org
> >>>>> Subject:      [Rhodes22-list] Taxes.
> >>>>>
> >>>>> Brad,
> >>>>>
> >>>>> I am neither conservation or liberal. My wife swears I'm a closet
> >>>>> conservative, but I deny all.
> >>>>> I am glad to have the opportunity to pay taxes. As a citizen, I
> accept
> >>>>>
> >>>>>
> >>>> the
> >>>>
> >>>>
> >>>>> responsibility and make every effort to make my tax returns as
> accurate
> >>>>>
> >>>>>
> >>>> as
> >>>>
> >>>>
> >>>>> possible.
> >>>>>
> >>>>>
> >>>>> Rummy
> >>>>> __________________________________________________
> >>>>> Use Rhodes22-list at rhodes22.org, Help? www.rhodes22.org/list
> >>>>>
> >>>>> __________________________________________________
> >>>>> Use Rhodes22-list at rhodes22.org, Help? www.rhodes22.org/list
> >>>>>
> >>>>>
> >>>>>
> >>>>>
> >>>> __________________________________________________
> >>>> Use Rhodes22-list at rhodes22.org, Help? www.rhodes22.org/list
> >>>>
> >>>> __________________________________________________
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> >>>>
> >>>>
> >>>> __________________________________________________
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> >>>>
> >>>>
> >>>>
> >>> __________________________________________________
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> >>>
> >>>
> >> __________________________________________________
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> >>
> >>
> >>
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> >
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