Tagtax

Itemized Taxes

Jairam Ramesh: If you don’t want to pay you don’t, I will pay from my tax money. Anyway most of you do not pay your taxes. In India very few people responsibly pay their taxes and I pay my tax and my tax money would be used for cleaning up Bhopal.

[Source: Jairam Ramesh gets a roasting from TISS students in Mumbai; via Jina Joan DCruz]See, it is that simple. Mr. Jairam Ramesh is proposing a major reform to our tax code that will enable us to specify which government projects we can direct our tax dollars to. I say, we support this idea to see how it pans out. Mr. Jairam Ramesh has already pledged his taxes for cleaning up Bhopal. I’m sure his seven hundred generations will also live up to that pledge.

Threatening to Quit

Remember it was social mobility that made America great—the ability to earn and get ahead. If Congress continues to buy votes at the expense of social mobility we will no longer be a great nation. The truly rich will stay that way but many "Henrys" (high earners, not rich yet) like me will quit. We may be only a small percentage of the population but we pay a large portion of the taxes and employ many. If you take the incentives away you will lose Henrys.

I love reading such rants but I would like them more if 'Henry' had written this AFTER he had quit. Threatening to quit because of high taxes is just drama; at least try and emulate your hero John Galt, and I will truly admire you.

A Test for Pro-Life Stance

In 2010, the estate tax is finally abolished, but only for one year. Because the original legislation was effective only for 10 years, starting in 2011 the estate tax goes back to exactly where it was in 2001. The exemption will be reduced to $1 million and the maximum tax rate goes back up to 55%.

I wonder if there are any rich people being kept on life support so that their deaths won’t occur until 2010, just so their heirs can save a few dollars in estate taxes. It will be even more interesting a year from now to see if there are any premature deaths among such people, assuming that the law remains unchanged.

[Source: Republican Rigidity – Forbes.com]. Wouldn’t this be an interesting test bed for your pro-life position? Millions in tax savings on one hand and sanctity of life on the other? Can we take bets on which side these people will choose? Although it talks about inheritance tax legislation, the column focuses on Republican rigidity and how it is stifling the legislative process in America. Democrats, by nature, are always open to negotiation and concessions but ratcheting up unrealistic demands are keep even genuinely useful conservative ideas away from American people.

Popular Myths on Homeownership

2. The homebuyer tax credit makes buying a house more affordable.

Not necessarily. Just because you got an $8,000 tax credit toward the purchase of a home doesn’t mean that you actually saved $8,000. In areas where there is strong demand for housing and the supply of new housing is limited — including the Washington metro region — tax credits may result in the bidding up of home prices.

[Source: 5 Myths about Homeownership]. This short and interesting article on popular myths on homeownership puts things in perspective for potential home buyers; especially pertinent to us since we just made the plunge to get our first home. Firstly, the point that I quote about is true of College Station. It has a strong demand for housing and the supply of new housing is limited. This report on the housing market [PDF] as of May 1, 2007 although dated is still relevant. As you see, the total demand far outstrips the sales units under construction (for rentals, supply meets demand). The in-migration of high-skilled workers (professors and research staff) to the town is strong due to the presence of Texas A&M University. The investment crowd also has a significant presence as parents buy homes/condos during their kids’ tenure at the university (they sell or lease out units after they graduate). The majority of the homes sold fall under $200,000; the price somewhat tempered by the presence of the city of Bryan.

Surprisingly, the older homes in town tend to be more expensive than newer ones simply because of the now-cliched adage, location location location. Homes located near the university or within the older boundaries of the City are expensive and if you must find a home suited for your budget, you must be willing to drive five more minutes down south on Hwy.6. But don’t drive out too far to the Indian Lakes and Coves at Nantucket subdivisions where the homes are palatial and prices can touch a million. If you drive west, you still may get what you want at the price you want but then be prepared to drive down couple of miles even for a loaf of bread. Public transportation in this town is non-existent so if you want to live close to the amenities, you have to rent. Our previous apartment was fantastically located [within walking distance] near shopping, a public park, coffee shops, bars, restaurants, mall, and close yet not too close to the highway. Unfortunately, homes are older and more expensive in that neighborhood.

Coming back to the question of the tax credit saving money myth quoted above, it is valid if you are purchasing your home ONLY to avail yourself of the savings. Before the tax credit was extended couple of weeks back, we avoided rushing in to making our decision. The extension merely sweetened the deal for us. Are home builders gaining at the expense of home buyers in College Station? I think not. Why? I’ll keep that for a later time.

Homebuyer Tax Credit Extended

The $8,000 tax credit for first-time homebuyers would be extended and some people who already own residences could claim a benefit under a proposal by Senate Democrats.

An agreement reached yesterday by the Democrats would let homeowners who buy a new home qualify for a $6,500 credit if they have lived in their prior residence for five years, according to Regan Lachapelle, an aide to Senate Majority Leader Harry Reid.

The plan would extend the homebuyers credit, due to expire Nov. 30, to home purchases under contract by April 30, 2010, with borrowers allowed another 60 days to close the sale, according to a person familiar with the details of the agreement [source].

Since we are now in the market for our first home in this country, this comes as welcome news. It vindicates our decision to wait a while before we bought a home. In fact, the extension opens up the program to homeowners who may not be buying their first home but have lived in their existing home for at least five years (approx. the average period a household lives in one home in the U.S.) The tax credit is 10 percent lower but it is at least better than nothing.

On the other hand, I know of people including my in-laws who purchased their first-home this year just to take advantage of this tax credit. But considering the still-dire economic conditions and the sad state of the housing market, I had expected at least a one-time extension of this program similar to the ‘cash for clunkers’ program. There are arguments to be made on either side whether this program works or not but in our town which has been largely unaffected by the housing crisis, realtors and mortgage lenders have admitted that business was up by at least 20%.

This tax credit provides an impetus to potential homebuyers to take the plunge toward their first home and in turn stimulate the real estate market to get the ball rolling. However, this can also encourage behavior that landed us in this spot in the first place. I know of some people who rushed into buying their home this year just to take advantage of this tax credit. Buying a 200-300K home for 8K sounds ridiculous especially when you have a mountain of student loans. I know my in-laws who recently moved into their new home factored this in their decision but at least they put 20% down. For yuppies who wait and save up for their downpayment, this extension comes as a godFSMsend. More on the housing hunting later.

Decreasing your Income

I guess some should stick to basketball brackets (it’s March Madness time after all) instead of delving into the basics of tax brackets. Such ignorance should be illegal.

Balancing the Budget – No Easy Task

I find the Nextel ad that uses firemen acting as legislators baffling. The chief with the gavel wants to balance the budget and reduce taxes but build better roads and provide clean water.

It reminds me of McCain last night who also wants to balance the budget in four years from a half-trillion deficit while making the Bush tax cuts permanent. Where is the revenue to balance the budget going to come from? Cutting earmarks? Even if you eliminate all earmarks you save only $18 billion; a mere three percent of the deficit. Mind you, the U.S. is still at war in two countries spending nearly $10 billion a week and threatening more wars. Even if the Drill Baby Drill tactic succeeds, it will be more than 10 years before you see any difference in the oil prices provided of course, cars still run exclusively on gasoline.

At the end of the day if you’re in a meeting trying to balance the budget, you’ve to ask show me the money. Contrary to what the firemen say, it really isn’t the easiest job you’ve done. At least you know when the fire is put out.

Obama – Fiscal Conservative?

Almost 90% of Americans will pay less taxes under Obama than under McCain. And you thought Republicans were the fiscally conservative party. You’ll seen an increase in your taxes under Obama only if you earn $112K or more (strangely only $12 increase if you earn between $227K and $603K). Perhaps the ‘tax cut to the richest’ argument has some teeth after all.

Can H1-B and F1 visa holders earn money online?

There are plenty of students and working professionals who are in the United States on an H1-B or F1 visa respectively. As in our recently concluded survey on DesiPundit, we noticed that many such individuals follows blogs closely and are also bloggers themselves. Chances are that they have chosen to monetize their blog either through Adsense or other advertising channels. The question, asked by Confused early Saturday morning was whether such income earned through blogs was legitimate and allowed under our visa status.

He sent me this link that explored the question of earning money via Adsense while being on a H1-B visa. The post cited well-known immigration attorney Shiela Murthy in the context of the 1099 tax form that you get for your Adsense or other online earnings:

A person on an H1B is not allowed to work on a 1099 at all. One who is on an EAD is allowed to work as an independent contractor if s/he is the I-485 dependent on the EAD and not the principal applicant for the Green Card, to be on the safe side. If the total time working was less than 180 days, there is possible hope to obtain the I-485 in the U.S. Otherwise, it adds complications and will not generally allow the person to obtain an approval of the I-485 from within the U.S. You should consult an immigration attorney to discuss this issue since it could have serious consequences.

So basically, if you are on a H1-B visa, you are authorized to work for only one those employers that sponsor your visa. You cannot be self-employed and earn additional income and doing so will render you out-of-status. Note that the I-485 mentioned above is a preliminary step in your Green Card processing. So what about F1 students? I did some digging around since that would directly affect a lot of students that blog and monetize their blogs. One respondent on an immigration visa forum said the following in response to 1099-related question for F1 visa holders:

An F1 visa does not allow you to take off campus employment anywhere or anytime you want. You can only take employment under specific circumstances, such as through OPT or CPT and there are hardship provisions too. But generally, an F1 student cannot simply go out and find employment. This is illegal. I would encourage you not to do this because it is a violation of your status.

That a student cannot work off-campus [during semesters] is common knowledge but is your blog earnings also off-campus? Well, technically it is since you are getting paid as a consultant by another company e.g. Google, Text Link Ads, Yahoo, etc. You can only earn money outside of your on-campus employment if you earn interest off your investments (movable and/or immovable) or savings. Visible Blog recommends another (risky) way by which you can register a company and hire someone at minimum wages to ‘run’ your blog. Your ‘company’ would earn money and you get a ‘passive’ income. However, as the blog rightly mentions, it is a risk. And you definitely don’t want to do that unless you are earning thousands everyday.

So what do you do? Should you yank off your monetizing avenues off your blog? If you hate any kind of risk then probably that is the best thing to do. However, the bureaucratic mess that the BCIS and IRS are, chances are that they never share information. Better still, if you earn less than $600 [per advertising program], you still have to report it. I’m sure most of us don’t earn that much. But if you do, you might want to either remove that option which I understand can be akin to killing the golden goose.

Finally, if you are earning $600 or less per advertising program, you might slip under the radar but understand that it is a risk and it might only be a problem if you are planning on applying for a Green Card later on. This is not legal advice and I don’t profess any deep knowledge on immigration law so if you know better, please feel free to discuss in the comments.

Tax Code on Podcast

Why? Because Tax Code rocks! I want Jack Bogdanski’s UnTaxed. Bah!

$65 million poorer

In a grim homage to Ocean’s Eleven, thieves presumably from either the First Command or the Red Command, the two largest organized criminal gangs in Brazil stole nearly $65 million from a bank. They carried out their elaborately planned scheme on a weekend allowing them enough time to escape before their act could be discovered on Monday when the bank reopened. The modus operandi was simple — they rented a house across from the bank and dug a 200 feet tunnel underground to steal their money. I can almost see Hollywood buzzing with possible movie plots.

Unfortunately the sad news was to follow — Brazilian taxpayers would have to bear the burden of this daring heist. The money wasn’t insured (except for transport insurance) so unless the thieves are apprehended, there is no way of recovering the money. On one hand, it was a daring and well planned act but then so was 9/11. Although no one died, $65 million is lot of money and burden on the taxpayer is significant. I hope this act isn’t glorified in the media or elsewhere. Some people have already found the whole thing quite funny because of the way the act was carried out. It also seems that it was a repeat of a previous robbery done at Sao Paulo. It is indeed unfortunate that the authorities haven’t learnt much. I would love to hear how the Brazilian public is reacting to this news. Well, in India, we have a knack to idolizing criminals.

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