How Europeans See Money Differently From Americans

Stonehenge Sideways View

After almost finishing my loop around Stonehenge, I stumbled across a French woman who was lying on the ground sideways. She adjusted herself a little bit to get more comfortable, but paid no attention to fellow tourists wondering what she was doing.

She made me want to lie down sideways as well to see what she was seeing. I didn’t because I felt a little silly copying her in broad daylight. So instead, I took this picture and tilted my phone. Perhaps you are now bending your head sideways or lifting your laptop sideways to see what she sees.

What do you see?

At What Income Level Does The Marriage Penalty Tax Kick In?

Marriage Penalty Tax In HawaiiOne of the most disappointing things about the government is their institution of the marriage penalty tax. The government is smart to laud the act of marriage in order to collect more taxes. When you’re in love, what’s an extra $1,000 or $10,000 a year in taxes you’ve got to pay? Love is blind and the government tries to take full advantage of you.

Lucky for us, we are not blind. We don’t mindlessly follow everything our politicians have to say. We question why the government suddenly allowed Roth IRA conversions during the height of the financial crisis. We think for ourselves, and that’s why the lot of us are going to be much better off than the rest.

This post will present examples of various fictitious couples with various income levels and deductions to give you an idea of how much extra you must pay the government in order to get married. All data comes from this marriage penalty tax calculator by the Tax Policy Center.

I encourage you to input your own numbers and see what happens after this post as well. Remember, please take your anger out on the government, not on me. I’m just the investigator trying to shine a bright light on this ludicrous situation. Just the fact that I had to spend loads of time figuring out various income permutations to see when the marriage penalty tax kicks in is maddening. 

The Benefits Of A Backdoor Roth IRA

Backdoor Roth IRA - Horseback ridingIs A Backdoor Roth IRA A Good Move?” on Daily Capital is probably the best post on the internet that explains who should do a backdoor Roth IRA, how to do a backdoor Roth IRA, who is allowed to do a backdoor Roth IRA, the risks of a backdoor Roth IRA, and who doesn’t need to do a backdoor Roth IRA. Have a read and I’m sure you’ll agree.

Long time readers know that I’m one of the biggest detractors of the Roth IRA program. The main reality is: most people will make less in retirement than during their working years. Therefore, taxes should be lower, all things being equal. I present many more arguments as to why a Roth IRA is suboptimal.

But after spending some time editing the Daily Capital post, I’ve come around to the idea that for some people, a backdoor Roth IRA is a good move. Here are three main reasons why a backdoor Roth IRA should be considered.

Investing Your Tax Refund For A 1,000% Return

Mauna Kea, HawaiiIn the article, “How To Get Over Your Fear Of Investing” I mention how your risk tolerance decreases the more capital you accumulate. When you were rocking a $100,000 net worth as a 30-year-old, you had no problems investing 30% of your net worth in your employer’s promising stock. But now that you’re 50 and less enthusiastic about working for decades more, investing 30% of your $1 million nest egg doesn’t seem like a good idea.

The tax refund actually provides for a great opportunity to swing for the ROI fences every single year, no matter your age or net worth. Given that the average tax refund is only around $3,000, many people just blow it on material things like shoes, clothing, gadgets, and LED TVs. It’s not necessarily a bad idea to use your “bonus” money to buy something tangible: any of these things can provide solid utility until next year’s refund. Alternatively, going the traditional route of paying down debt or increasing a depleted emergency fund is also fine, just terribly unexciting.

Now if your tax refund was a whopping $100,000, I’m willing to be that your approach to spending it would be substantially different! Some would unwisely go out and spend the money instantly on a luxury automobile; most, however, would probably give considerably more thought to the question of how to deploy such a large sum. Things like paying down a mortgage, investing for retirement, buying a home, putting money away for a child’s education, or helping out a loved one all come to mind with this level of money. But most people will never receive such a large refund, so the point is moot (sorry!). The $100k refund simply provides a mental exercise that highlights how our spending habits shift when dealing with different levels of money.

Although a tax refund often feels like a nice windfall each year, it’s actually been your money all along. And how boring it is to just invest that money (now that you finally have it) in the stock market for a potential 8% historical return. Of course if you’ve got revolving credit card debt with interest rates in the teens or higher, certainly give that a whack. But as a Financial Samurai reader, I’m thinking you guys are savvier than this.

Why You Should Really Do Your Own Taxes

1040Every year I spend $49.99 to buy the H&R Block Premium Edition software to do my own taxes. And every year someone scoffs at me for spending a couple hours of my life learning, understanding, and optimizing my finances to pay the least amount of taxes legally possible. A part-time tax preparer who’ll make $375 doing my taxes isn’t going to know more than me. A full-time tax preparer with a CPA who charges $1,000 might be worth it. But after doing my taxes for 12 years, the only way the CPA will save me more money is by cheating. There is no magic that only tax accountants can use to reduce taxes.

The best way to learn about something is to do it yourself. Remember when you were growing up and your mom taught you how to do a math problem, only for you to completely forget how to do it come test time? How about reading all those SAT test prep books and then getting a mediocre score because you didn’t take enough sample tests? Being instructed on how to do something is helpful, but getting in the weeds and solving different variations of the problem over and over again is the only way to achieve mastery. The same concept goes for understanding and minimizing your taxes.

Dealing With The Guilt-Joy Of Raising Taxes On The Rich

view-from-aboveWatch out, rich people: I’m coming for you! A preliminary run-through of my 2013 taxes has revealed that I now earn a low enough amount to no longer qualify as a prime tax hike target. And yet, as sad as this apparent reduction of my own productivity may be, I still possess a wondrous power: the ability to vote to raise taxes on others to benefit me, me, ME!

It’s quite amazing, really; first we learn that the average 401(k) balance surpasses $100,000 for over 50 million working Americans, then we find out that the national unemployment rate has dropped to 6.6%, and now this? Drinks for all, paid for by my rich blogging buddies next time we meet.

I think it’s everybody’s duty to pay taxes. A flat tax above a certain minimum income level of comfort (MILC™) for individuals and families sounds like a fair approach, right? Make 10x more than someone, pay 10x more in taxes than someone. Stuck below the MILC? Don’t worry about income taxes, we got you; just pay sales tax, and FICA tax for your own good (assuming you have a job). We all enjoy the same benefits of military protection, libraries, a functioning judicial system, the NSA, and manicured public parks; it’s only right that we should all help pay for them.

This post offers a little bit of honest introspection as to how I’ve felt going from paying no income taxes as a student, to paying a boatload of income taxes as a worker bee, to once again paying not so much at all. I now find myself assailed by an odd sense of guilt; while my own tax liability has decreased, I still have the ability to potentially vote for legislation to increase someone else’s taxes in order to benefit myself and my family. Deep in my heart I know that ganging up on any one group is wrong, even if the law allows it. But hey— if I don’t pick up the $100 bill lying on the street, someone else will!

As a reminder, the ideal (adjusted gross) income for maximum happiness is $200,000 because:

  • Regardless of how high the cost of living may be in your neck of the woods, anything over $200,000 is a target for tax hikes, period.
  • The marginal federal tax rate is 28%– a reasonable number, even if you add a state tax rate of 8% to your wages.
  • You don’t have to pay the new Net Investment Tax of 3.8% for every dollar you make over $200,000 as an individual, or $250,000 as a couple (why 1+1 = 1.25, I don’t know!).
  • You still get to max out your 401(k) and save plenty in after-tax money at $200,000.
  • You get to be a part of the middle class, which is the best class in society.
  • You can vote to raise other people’s taxes without having to pay more yourself.

Exploit Online Data To Lower Your Property Taxes

Victorian Mansion In San FranciscoEver since 2008 I’ve been fighting to lower my property taxes every year. If I didn’t fight, the SF Property Assessor’s office would undoubtedly keep raising my assessed value all throughout the financial crisis because they need to extract as much money from homeowners as possible. Renters certainly aren’t going to volunteer to pitch in if they can simply vote to raise property taxes. Too bad everything just comes around in the form of higher rents. In other words, together we must stand united against the government.

Your main mission as a homeowner is to convince the assessor’s office your property is worth as close to $0 as possible. Anybody who is proud their assessed home value is higher is being silly because the government will take advantage of you. The same goes for people who make a lot of money telling everybody exactly how much they make. Practice the mantra of Stealth Wealth and believe your primary home is a dump in order to build your net worth further.

Tax Rules For Buying A SUV Or Truck To Deduct As A Business Expense

Range Rover Sport NewAs you may have read from my Net Worth Rule For Car Buying post, I’m looking into buying the redesigned Range Rover Sport HSE to replace Moose, a 13 year old Land Rover Discovery II. The Range Rover Sport can be had for roughly $73,500 MSRP, an exorbitant amount of money for a vehicle. The last time I spent over $70,000 for a vehicle was in 2002 when I bought a $77,000 Mercedes G500. I was much poorer then, but I just got my first bonus at my second job and wanted to splurge. I told myself never again after I sold it for a nice loss a year later in order to purchase my condo. The G-Wagon didn’t fit in the garage because it was too tall!

SUVs are an anathema to eco friendly San Francisco. But I’ve long argued that if you don’t completely destroy your car before buying a new car, you are still ADDING pollution to the world. I like SUVs because they ride high so I can see what’s going on in traffic. They can go through snowstorms with ease, a necessity for when I go up to Tahoe in winter. Furthermore, I’d rather be in a larger vehicle vs. a smaller vehicle during accidents.

SUVs have become more fuel efficient thankfully. The new Range Rover Sport V6 engine produces 345 hp at 17 city / 23 highway. Just 10 years ago such an SUV would be a V8 and run around 12 city / 17 highway mpg with only 185 hp. But this is not a post to defend purchasing a large vehicle. This post’s purpose is to discuss the aspect of purchasing a vehicle for your business in order to deduct the expense!

RULES FOR SUV / TRUCK PURCHASE FOR A BUSINESS

How To Avoid An Audit Based On Discrimination By The IRS

IRS pick pockets your moneyIt should come as NO surprise to long time Financial Samurai readers that the IRS admitted to targeting conservative groups since Obama became President. The government already discriminates against those who make over a certain amount by charging higher taxes even though they already pay for the majority of all taxes. Meanwhile, the deductions and credits you get for things such as education and children get eliminated if you make over an absurdly low amount. Conducting body cavity searches to shake more tax dollars out of Republicans is business as usual.

Make no mistake that if a Republican was President, liberal groups would also be targeted by the IRS. Everybody naturally discriminates against everybody. Sometimes the discrimination is overt and evil, other times the discrimination is covertly done out of convenience until discovered as is the case with the IRS.

The bottom line is that people have a strong proclivity to take care of their own, no matter what. In this article I’d like to discuss ways in which people can significantly reduce their chances of getting audited by the most powerful organization in America.

THREE EFFECTIVE STRATEGIES TO AVOID AN IRS AUDIT

How Landlords Can Raise The Rent Without Feeling Guilty

Overlooking a crowded beach in BrazilMany of my actions are driven by guilt. I’m constantly asking myself how I could be so lucky when there are so many folks just struggling to get by. My trip to India ten years ago made me stop overeating given all the poverty I saw. If I can’t help them, at least I won’t disrespect them through gluttony.

Even small, innocuous things are constantly being driven by guilt. After being up 4-2 in the second set against my friend Jaabir, I decided to tank the match just so he wouldn’t have to pay the $20 bet he initiated. I felt bad taking his money given he’s already down $140 this year alone. Lest you think I’m the one egging him on to bet, I’m not. He’s got an undesirable thirst to smack talk, while I have a consistent desire to defend my honor whenever challenged.

I absolutely hate raising the rent on my tenants because I feel bad. Although San Francisco rents went up by an estimated 12-15% in 2012, I only raised my tenant’s rent by 3%. My tenant is kickass awesome and to ask her for more money just felt dirty. The only time I do raise the rent is when there is turnover, which doesn’t happen too often.

One of the main reasons why I wrote, Renters Should Pay More Taxes is so that I could get over my guilt of raising rent. I’d much rather have the tenant pay the government directly for an increase in property taxes rather than through me. I wanted renters to get agitated by the notion of a “Renters Tax” where a renter sends in an annual check to their local assessors office twice a year based on the amount of rent they pay. This way, renters can directly experience the discomfort of paying for unnecessary spending and maybe, just maybe there will be less legislation that passes that sticks it to homeowners since we are the 30% minority.

It’s easy to spend another person’s money on yourself. With a Renters Tax, we all share in the burden of new government expenditures voted on by the people and will therefore think more carefully about the next legislation that proposes to raise taxes. The counter argument is that renters are already partially paying property taxes through the rent they pay. I realize this, but this is only true in a perfectly free market.

If there were no restrictions to the amount of rent a landlord could charge, and if landlords were not human beings with guilty consciences, but robots who could automatically adjust rent prices based on algorithms that measures current supply and demand, then a Renters Tax is not necessary. Unfortunately, a good portion of landlords do feel guilty. My fellow landlords I’ve surveyed all say that guilt is their #1 reason for not raising the rent to market rates. The #2 reason is rent control. If you own a multiple unit building in San Francisco that was built before 1970, a landlord can only raise rent by an index earmarked to inflation e.g. 1-3% a year.

If you read the fiery comments from the Renters Should Pay More Taxes post, you’ll see that renters bristle at the idea of paying more taxes just like homeowners. Hence, I think I’ve created a understanding between homeowners and renters where everybody who votes for more spending is willing to pay more taxes and therefore higher rents.

CHARGE WHAT THE MARKET CAN BEAR