Traders Taxed at Unfair Rate?

I see in an article today that Obama is expected to re-suggest a cap of 28% on the value of a deduction for rich people making over $100k a year. He feels it is 'unfair' that someone in the 39.6% tax bracket to actually get a deduction valued at that rate rather than at 28% like someone in the 28% tax bracket would get. Maybe I am missing something but is it only worth 39.6% because they are taxed at 39.6% rather than the 28% bracket. Suggestion: Lower the tax bracket to 28% then the rich would only get a 28% value like everyone else. Then we all can agree that a given tax deduction is worth the same for everyone. Then rich people would not be getting an unfair advantage. BTW - when did the definition of a rich person get lowered to $100,000 from say $1 million dollars like it was many moons ago. Should not the definition be going up with inflation?

Trader Tax Freedom Day

It appears that April 18th will be the so-called Tax Freedom Day this year. The average tax source walking the street on that day will feel a shutter then some relief because they will have earned enough to pay their 'fair' share of the federal, state and local 'investment' in society. It was April 13th last year - so in breathing days that is almost a 5% increase. Thought for the day: Has your value received from your elected officials and governmental employees increased by 5% over last year? Thinking that is not too bad? Well, if the borrowed debt that you should pay, rather than your kids will pay, is included then Tax Freedom Day would occur on May 9th. That extra 21 days would make the increase over 25% from last year. In 1945 while World War II was raging, Tax Freedom Day occurred on May 12th. So in a time of peace we are spending as much as we did on a world war. Some thoughts: Are we now spending more in taxes than on necessities such as food, clothing, and housing? Will we be classified as surfs once the effective date approaches the 50% mark, i.e. July 1st. Will we need to rename the national holiday of July 4th to Dependence Day?

Think You Don't Have to File Your Taxes On Time? Think Again!

It is a common misconception that you do not have to file your taxes on time, or even at all. However, neither of these are the case. Taxes must be filed each year by April 15th or you must file for an extension before that date.

If you do not file your taxes on time you may be subject to penalties by the IRS including:

• A failure-to-file penalty of 5-25% of your unpaid taxes
  
• A failure-to-file penalty of 100% of your unpaid taxes or $135, whichever is smaller, if you are more than 60 days late filing

It's Not Just Taxes, It's the Dollar

From an article on income taxes and the economy:

The proper level of taxation has predictably emerged as a major presidential campaign issue. The irony here is that stock market returns since the 1950s show that the dollar's stability and its direction trump taxes as the greatest indicator of our long-term economic prospects.

Sadly, the dollar's fall this decade has not generated any kind of campaign comment from either side. Oddly enough, both Senators McCain and Clinton support a federal gas-tax holiday for the summer. But it should be said that this gimmick perhaps is the primary campaign's ultimate non-sequitur. To endorse an 18-cent-per-gallon tax cut on gasoline is to miss the point. Pump prices aren't high due to federal taxes, but instead are reaching nosebleed levels thanks to a collapsing dollar.

If it's agreed that stock market returns at the very least indicate long-term economic optimism, the dollar's fall should be issue no. 1 for candidates on both sides. Just as high tax rates erode the value of paychecks and investments, so does inflation. And when stock market returns over the last 60 years are considered, it becomes apparent that all three presidential candidates do not have their eyes on the ball. In short, it's the dollar, stupid.

Today's Republicans want tax cuts, while Democrats want tax increases. Judging by equity returns, both sides ignore the dollar at their peril.

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McCain Proposes Summer Federal Gas Tax Breaks

Republican Presidential nominee John McCain wants a summer break, calling on the government to suspend all federal gasoline taxes from Memorial to Labor Day.

Senator John McCain, (R) Arizona: "The effect will be an immediate economic stimulus, taking a few dollars off the price of a tank of gas every time a family, a farmer, or trucker stops to fill up."

In a Tax-Day economic speech, McCain says he wants to reform the federal tax code, remove corporate tax loopholes, and cut taxes for businesses and middle income earners, including a "phaseout" of the "alternative minimum tax." McCain also criticized his Democratic rivals, claiming they would raise taxes.

Senator McCain: "All the tax increases are the fine print under the slogan of "hope." They're going to raise taxes by thousands of dollars per year, and they have the audacity to hope you don't mind."

Senator Barack Obama fired back.

Senator Barack Obama, (D) Illinois: "John McCain seems to think that the Bush years have been pretty good. In fact, he's running for a third Bush term. He is offering more of the same."

McCain's 'No new taxes' redux

According to an article on income taxes on dallasnews.com, has made the same promise that George Bush 41 made in 1988: “No new taxes”…

As he received former President George H.W. Bush's endorsement in Houston, John McCain noted that they had two things in common: Both were naval pilots, and both were shot down.
A day earlier, however, the presumptive Republican nominee added a third similarity, when he echoed Mr. Bush's most ill-fated 1988 campaign promise: "No new taxes."

On ABC's This Week with George Stephanopoulos, Mr. McCain pledged that under "no" circumstances would he increase taxes. He reiterated his support to make permanent the 2001 Bush tax cuts he once opposed, adding that he'd also like to eliminate the Alternate Minimum Tax.

It's a multibillion-dollar promise that Mr. McCain could rue if he wins the White House – and one more example of how appeals to various groups in primary campaigns can create problems down the road for a winning candidate.

The problem is not confined to the Republicans. Barack Obama and Hillary Clinton have promised to increase federal programs beyond what they may be able to deliver. Mr. Obama also says he'd withdraw all U.S. combat troops from Iraq within 16 months.

According to the Center on Budget and Policy Priorities, a liberal think tank, making permanent both the Bush tax cuts and the AMT fix would cost the government $3.6 trillion in revenues over the next decade. Repealing the AMT would cost even more.

Upper-income taxpayers would be prime beneficiaries of both moves.

A recent NBC-Wall Street Journal poll showed those surveyed evenly split on the economic merit of tax cuts. In an Associated Press/Ipsos poll, respondents put tax cuts below pulling out of Iraq and increasing federal domestic spending when asked what would help fix the economy significantly.

Reciting the tax-cut mantra may help Mr. McCain overcome some GOP doubts about his fealty to conservative principles, but it could cause him grief if he wins.

McCain, Romney and the Bush Tax Cut

Arizona Sen. John McCain and former Massachusetts governor Mitt Romney’s debated their positions on the Bush tax cut Wednesday night in California, less than a week before the Super Tuesday contests that could decide the GOP nomination.

Here are the facts about their positions on the Bush tax cut, according to an article on USAToday.com:

The claim: Romney criticized McCain during the debate for voting against tax cuts backed by President Bush and passed by Congress in 2001 and 2003.

The facts: McCain did vote against both tax bills, saying Bush's plan cut taxes too much for the wealthy and not enough for everyone else. "I cannot in good conscience support a tax cut in which so many of the benefits go to the most fortunate among us, at the expense of middle-class Americans who most need tax relief," McCain said in 2001.

During debate in 2004 on a different, smaller tax cut package that he supported, McCain said: "I support extending this tax relief to American families, but we have got to wake up and take a long, hard look at how we are going to pay for all of this." He has since voted to make the Bush tax cuts permanent.

As governor, Romney opposed broad-based tax hikes but signed legislation closing what he called corporate tax "loopholes" that resulted in some businesses paying more taxes. Romney also raised some fees for state services. During the debate, McCain said Romney had raised fees by $730 million, while Romney said the total was $240 million.

Ordinary Income and Capital Gains

According to an article on ordinary income and capital gains taxes, profit you make from your stock investments can be taxed in one of two ways, depending on the type of profit:

• Dividends - When you receive dividends from your stock (either in cash or stock), these dividends get taxed as ordinary income. This is also true if those dividends are in a dividend reinvestment plan. If, however, those dividends occur in a tax-sheltered plan, such as an IRA or 401(k) plan, then they’re exempt from taxes for as long as they’re in the plan. In January, investors receive a 1099-DIV statement from the issuer of the dividends that includes information on the amount of dividends earned the previous year. Check with your tax advisor because the latest tax laws offer tax advantages for dividends.

• Short-term capital gains - If you sell stock for a gain and you’ve owned the stock for just one year or less, the gain is considered ordinary income. If you buy a stock on August 1 and sell it on July 31 of the following year, that’s less than one year. To calculate the time, you use the trade date (or date of execution). This date is the date that you executed the order instead of the settlement date. However, if these gains occur in a tax-sheltered plan, such as a 401(k) or an IRA, no tax is triggered.

Long-term capital gains
Long-term capital gains are usually much better for you as far as taxes are concerned. The tax laws reward patient investors. After you have held the stock for at least a year and a day (what a difference a day makes!), your tax rate will be reduced. Get more information on capital gains in IRS Publication 550 “Investment Income and Expenses”. Because the tax on capital gains is the most relevant tax for stock investors.

Managing the tax burden from your investment profits is something that you can control. Gains are taxable only if a sale actually takes place. (In other words, only if the gain is “realized.”) If your stock in GazillionBucks, Inc., goes from $5 per share to $87, that $82 appreciation isn’t subject to taxation unless you actually sell the stock. Until you sell, that gain is “unrealized.” Time your stock sales carefully hold on to them at least a year to minimize the amount of taxes you have to pay on them.