#784: What is FICA and Why Does It Take My Money?

 One of my favorite tv ads of all time is a McDonald's commercial that I believe was captioned "First Job."  A teenager, proud of earning their first paycheck, tells the family they are taking them out for a McDonald's dinner to celebrate, but as they open the check (yes, this ad was before direct deposit), they look at the paycheck and ask "Who is FICA and why are they getting my money?"  For anyone who may still ask this question, Michelle Singletary of the Washington Post has our answers in this article.  WaPo may require registration to read the article and access a limited amount of free content.

#779: More Good Tips from Michelle Singletary on iBonds

 Read WaPo article here

#778: 4 Ways Inflation Can Help Cut Taxes

 Read this article here

#777: Planning for the Future

 

#776: Social Security Up, Medicare Down for 2023

 From the Washington Post:

https://www.washingtonpost.com/us-policy/2022/10/12/social-security-cola-2023/

#775: Inflation Adjusted Tax Rates & Other Changes for 2023

From the Washington Post.  You may be required to register for a free account that provides a limited number of articles each month.

https://www.washingtonpost.com/us-policy/2022/10/18/irs-deductions-brackets-inflation/

#771: Last Minute Tax Tips

 

#742: Tax Refunds Delayed by IRS

 This Washington Post article outlines the budgetary challenges that the IRS is facing and why you are not so likely to be audited. 

#741: Explaining Capital Gains - from Morning Brew 4/23/21

President Biden will soon propose nearly doubling the capital gains tax for wealthy people to 39.6%, according to Bloomberg. Wealthy people = individuals earning $1 million or more.

Biden is expected to announce the tax hike next week as part of the pitch for his "American Families Plan," the highly anticipated sequel to the $2.3 trillion infrastructure proposal he released a few weeks ago. 

To pay for the first plan, which includes spending on bridges and broadband, Biden wants to hike taxes on corporations.

To pay for his second proposal, which includes spending on childcare and paid leave for workers, he wants to hike taxes on wealthy investors.

Capital gains 101

You pay capital gains taxes on your profits from a savvy investment. For example, say in the summer of 2020 you listened to Roaring Kitty and bought GameStop at $4.50/share, then sold it this year at $150/share to buy courtside tickets to the Knicks' NBA Finals game—nice work, but you're going to have to pay taxes once you sell that stock.

Investments held for less than one year are taxed like regular income, but long-term capital gains (investments held for at least one year) have three tax brackets that top out at just 20%.

Critics of the current capital gains system say, "So you're telling me this rich investor is paying less in taxes on their stock sales than a middle-class worker pays on their income? That doesn't sound right." Wealthy people with a majority of their net worth tied up in investments do benefit from the current system—Warren Buffett once said he's the lowest-paying taxpayer in his office. 

But people who oppose raising capital gains taxes argue that the ripple effects would be way worse, disincentivizing risk-taking, holding back economic growth, and discouraging investors from selling their assets, which is seen as keeping the market healthy. 

Bottom line: Investors knew this dramatic hike was coming (the proposal was in candidate Biden's tax plan), but the report jarred Wall Street nonetheless. It could lead to a lot of asset sales before 2021's out, according to Axios. 

#739: Tax Day is May 17

 

#734: Tax Predictions from The Morning Brew 3/16/21

 We're just going to rip off the Band-Aid: President Biden is aiming to raise taxes sooner rather than later, according to a new Bloomberg report. 

What can you expect? For individuals...

• Bumping the income tax to 39.6% for those earning $400,000+  
• Taxing capital gains like normal income if you earn $1+ million
• Increasing estate taxes to 45% for assets worth $1+ million

So, if you still clip coupons, don't expect any changes. These increases largely follow Biden's campaign proposals to only tax high-earners.

What about businesses?

The headline proposal is raising the corporate rate to 28%. Biden may also get rid of preferential tax treatment for "pass-through businesses" like LLCs and increase incentives to avoid offshoring. 

When Trump slashed the corporate rate to 21% in 2017, he wasn't the first to bat for business interests. From 2000–2018, 76 countries reduced their corporate rates to attract investment; now, the average rate is ~24%. Treasury Sec. Janet Yellen wants to stop that "race to the bottom," which some economists say has only benefited large companies, so she's working with allies on establishing a global minimum tax for multinationals. 

• UC Berkeley economists estimate 40% of profits earned by multinational firms (or $700+ billion) were located in tax havens in 2017. 

Critics argue this plan puts companies at risk for double taxation. And the Tax Foundation estimates that some of the proposed changes to corporate taxes would reduce US GDP by 0.8% and wages by 0.7% in the long run. 

So why do they want to do this? 

Given that the last major tax hike happened in 1993, it's not an easy play for hearts and votes. And groups with lots of money at stake are sure to lobby against the plan.

But after funding his ambitious $1.9 trillion Covid package largely with government debt, Biden needs something more sustainable for the even more ambitious infrastructure package he's eyeing, which could run anywhere from $2–$4 trillion. 

#729: Fixing Social Security

 Another article from Michelle Singletary of The Washington Post, this time about needed fixes to strengthen Social Security.  This article points to how the pandemic is going to affect long term solvency of the Social Security trust funds.

#728: Tax Season Kicks Off February 12th. Here's What to Expect.

 Click here to read this excellent article by WaPo's Michelle Singletary.  You may be prompted to register for a free account which allows for access to a limited number of articles per month. 

#723: Zappos CEO Dies a Millionaire, But Without a Will

 Click here to access this Washington Post article.  Registration may be required, but you can register to read a small number of articles free each month without a subscription.

#721: Key Financial and Tax Saving Moves to Consider Before Year End

 

#715: Walmart Reports Outstanding Earnings With an *

 Another great Morning Brew article from mid-August

Can We Get the Check?

Francis Scialabba

If you work in retail, you likely saw yesterday’s headline earnings beat. Walmart’s Q2 earnings defied expectations, led by a 97% jump in e-commerce sales.   But there’s an asterisk. Low-income shoppers who relied on federal stimulus checks make up a significant portion of Walmart’s customer base. And without a second round of $1,200 checks or renewed unemployment aid to keep filling carts, CEO Doug McMillon said Walmart’s boom period has already deflated. Comparable sales only rose 4% in July, compared to 9.3% gains for the quarter overall.  So far in August, “Consumers are still spending money but not at [the] pace they were in the middle of the quarter,” CFO Brett Biggs told Bloomberg.  It’s not just Walmart. Across retail earnings calls this week, leaders 1) dropped our forbidden words like Supreme collabs and 2) said that the end of stimulus relief is hurting sales.  Home Depot CEO Craig Menear: “When customers have more money in their pocket, there’s some benefit to that. So we don’t kid ourselves to think that that didn’t have some kind of impact.” Kohl’s CEO Michelle Gass: “Consumer behavior has been profoundly altered given safety and spending concerns, and we don’t expect this to change in the near term.” Analysts expected as much when overall retail sales rose only 1.2% in July, a marked slowdown from May and June surges.  The only exception? This morning, Target reported in-store and online sales rose 24.3% in Q2, a record for the Walmart rival. CEO Brian Cornell attributed rising sales to shoppers sitting out summer travel—not stimulus benefits. “The stimulus was a factor, but even as it waned we saw strong comparable-sales growth in June and July,” Cornell told Bloomberg. Looking ahead...Federal lawmakers will determine if the tide can turn in retailers’ (and consumers’) favor.  Congress is currently deadlocked over competing stimulus packages.  President Trump signed an order on August 8 granting supplementary unemployment benefits, but it’s short of the possible trillions the stimulus packages could offer and won’t reach beneficiaries for weeks. Bottom line: Stimulus or no stimulus, Walmart and company aren’t putting a restructuring expert on speed dial anytime soon. But waning benefits could set retailers of all sizes up for disappointing results in Q3.

#680: Tax Tips x Two from the Today Show

#678: What to Know Before Filing Your Taxes

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#672: A Big Tax Refund is Nothing to Celebrate. Here's Why.

Click here to read article. You may have to register for the Washington Post to access a limited number of free articles, but again they are free!

#656: Billionaires Have Lower Tax Rate than Working Class for the First Time in History

Click here to access the Washington Post article on this shift in the make up of tax paying citizens. You may have to register for a WaPo account, but it doesn't cost anything and you get a small number of free articles each month.