Tax Havens For Retirees

When I retire, I plan to live off my dividends and other passive income. California, which is basically broke, which has pretty high state taxes is not the most optimal place - especially once you don't have a job and have the flexibility to live in cheaper places. Some states like Nevada, have on tax on personal income, while some like New Hampshire only tax interest and dividends (definitely retiree unfriendly). Forbes recently had an article about states Wooing Retirees With Tax Breaks.

Last month, even as they slapped a new tax on hospitals, raised dozens of
user fees and eliminated a low-income tax credit, Georgia legislators passed
income tax relief for one group: well-off retirees. For residents 62 or older,
Georgia already exempts from its 6% tax all Social Security and $70,000 per
couple of income from pensions, retirement accounts, annuities, interest,
dividends, capital gains and rents. But in 2012 the exemption for couples 65 and
older will rise to $130,000, and by 2016 all their retirement income will be
exempt--a break Governor Sonny Perdue championed as a lure for well-heeled
seniors.

If you're looking for a domestic retirement tax haven, Georgia is hardly the only place worth considering. Seven states--Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming--don't tax personal income at all. New Hampshire and Tennessee tax interest and dividends but not other income. The rest of the states have broad income taxes but give old taxpayers breaks, some quite generous. A recent study by Karen Smith Conway of the University of New Hampshire and Jonathan C. Rork of Georgia State calculates that retirees pay, on average, only half the state income tax of working folks with the same income.

So depending on whether you have w-2 income or 1098-int income, you might want to consider different states to live in. Of course, higher rates of real estate taxes and estate taxes will complicate things further.

Gouging At The Pump?

Isn't it funny how the ruckus about high gasoline prices has disappeared? I no longer hear anything about it on the news, the politicians haven't taxed Exxon-Mobile's record profits, and I don't get idiotic emails asking me to boycott gas stations for one day in a year.

Yesterday I was filling gas and I decided to actually calculate how much tax I pay on each gallon. Regular was $2.99 of which about 7.75% is sales tax, but there were a few other taxes added. All told, $0.92 was taxes, which works out to about 30% taxes on each gallon.

Sounds like the government is already getting the lion's share of profits and they didn't want anyone else to get in on the action!

Since I hate paying any form of taxes, I think I'm finally motivated to reduce my driving to cut down on my gas usage!

Attorney Acquitted On Federal Income Tax Charges

While this is not something I recommend you try out at home, its definitely interesting.

A Shreveport attorney who has challenged the government for years on the legality of filing federal income taxes has been acquitted on charges he failed to file returns.

A federal jury unanimously found Tommy Cryer not guilty this week on two misdemeanor counts of failure to file.

And according to Cryer, the prosecution dismissed two felony charges of tax evasion prior to trial.

"The court could not find a law that makes me liable or makes my revenues taxable," Cryer said. "The Supreme Court has ruled that the government cannot impose an income tax on anything but the profits and gains. When you work for someone you give your service and labor in exchange for money, so everything you make is not profit or gain. You put something into it."

You can read the whole story here.

I had read a book about this and also saw a website where some attorneys would set you up with a "pure virtual trust" so that you can somehow avoid paying taxes. I really didn't understand how it worked, my wife said it was a fraud and my tax bracket is incredibly low anyway so I didn't pursue it.

And we end with a riddle:

Whats the difference between tax evasion and tax avoidance?
About 5-7 years!

Government Programs Getting Bigger.

Here's some interesting info.

Gary Shilling, an economist in Springfield, N.J., figures that 52.6% of Americans, including dependents of direct recipients, "now receive significant income from government programs," the Christian Science Monitor reported.

Seven years ago, that number was 49.4%. And back in 1950, only a mere 28.3% of Americans relied on Washington. That really shows how government welfare has expanded over the last half century.

Investor's Business Daily puts all this in perspective: "The left delights in shrieking about how the rich beat down the poor, about how the wealthy benefit from the tax cuts at the expense of those at the bottom. But the top 5% of income earners pay 57.1% of all federal income taxes. At the same time, 45 million Americans, many of them in the lower income grouping, pay no taxes at all. Instead of the rich getting richer while the poor get poorer, the rich are paying a growing share of the tax burden while the poor's share shrinks."

I hate paying taxes. Here's another humorous look at our current tax system really works.

Free Online Tax-Extension Filing

Don't forget to file your extensions today if you haven't done your taxes. You have until midnight to get out the extensions. Most Post Offices are open until then today.

If you're really lazy, you can file it online and if you're really cheap (like me) you can file it for free!

Just go to Tax Act Online to file the extension for free. Make sure you click all the way through to the 'Submit' button at the end.

Several companies like Intuit are charging for this service. So its nice of the people at Tax Act to make it free.

Also when it comes time to file the taxes, there are several companies that will efile for free if your AGI is under $52,000. Make sure you go to IRS's website to find out which ones offer that deal.

How many of you do your own taxes?

How The Tax System Really Works

Got this humorous email today. Enjoy.

Suppose that every day, ten men go out for beer and the bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. "Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20. "Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected. They would still drink for free. But what about the other six men - the paying customers? How could they divide the $20 windfall so that everyone would get his 'fair share?'
They realized that $20 divided by six is $3.33.

But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before.
And the first four continued to drink for free.
But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $20,"declared the sixth man.
He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got TEN times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and college professors, is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

SAVING MONEY FOR KIDS EDUCATION

For many parents, savings for their kids education is a big concern. Many opt to put them in a tax-deferred savings vehicle like the 529 plan.

Not only is this a good way to save for children's education related expenses like tuition, lodging, groceries, books, etc but there are some other loophole available too.

* You can change the beneficiary at any point to favor someone who goes to a more expensive school.

* You can use the money for your own education.

* You can give upto $60,000 to a single beneficiary in one go, although you can't give that same beneficiary any more contributions for 5 years.(since the maximum gift amount is $12,000 per year)

* You can use it as an estate planning tool by moving money out of your estate (but not necessarily out of your control). If grandpa & grandma each gift $50,000 to each of their 5 grandkids, thats $500,000 out of the estate in one fell swoop! Of course, they better not die too quickly, else some of it may be taxable!

* Being able to change the beneficiary may also allows you to skip paying estate tax for several generations!

It might be complicated to understand and setup, but I think its definitely worth checking into.

Land Trusts Offer Great Tax Breaks

According to the WSJ, Landowners Rush to Take Advantage of New Law That Boosts Deductions for Blocking Development.

Here's how it works: A landowner typically donates a conservation easement to a land trust, a type of non-profit organization that helps put together the easement and monitors its restrictions over time. The value of the donation for income-tax purposes generally is the difference between the land's unrestricted value and its new value with limited development or usage rights.

Landowners can now deduct the value of a donation up to 50% of their adjusted gross income per year, up from the previous ceiling of 30%. That means if your adjusted gross income is $100,000, you are now eligible for as much as a $50,000 tax deduction a year, instead of $30,000. And if your income is too low to deduct the full amount of your gift in one year, you can now carry forward the deduction for 15 additional years, up from five years previously.

The law is even more generous for career farmers and ranchers who earn at least half their income from their land. These property owners, who are often land-rich, but cash-poor, can now deduct up to 100% of their income. "If you're a farmer you could pay no federal income taxes for 16 years," says Rand Wentworth, president of the Land Trust Alliance, a coalition of 1,600 land trusts across the country.

So if you're one of the lucky rich people who can afford to buy land out in the wilderness for horse riding or camping or whatever, you can now write it off. All you need to do to promise not to build on it. Now thats a neat tax deduction.