Taxes aren’t the one purpose Elon Musk is promoting Tesla inventory

Elon Musk’s sales of Tesla Stock last week came as little surprise to those who followed its history potential tax burden of $ 10 billion to $ 15 billion on stock options granted in 2012. However, according to accountants, most of his sales don’t appear to be tax-related – which could mean he’ll be offloading far more shares than expected.

The options on Musk’s 23 million shares expire in August, which is the deadline for filing taxes with California and the Internal Revenue Service. Musk began exercising the options on November 8th. He exercised $ 2.5 billion in stocks and sold $ 1.1 billion of those exercised options to pay taxes.

“The common stock was sold solely to meet the tax withholding obligations of the reporter in connection with the exercise of stock options,” said a footnote from its Securities and Exchange Commission submission for November 8th.

On Monday, Musk sold an additional $ 930 million in shares to pay taxes on options he exercised on 2.1 million shares. This brings his total option exercise to approximately $ 4.6 billion and his shares sold to meet tax withholding obligations to $ 2 billion.

Most of the sales over the past week, however, were for another reason. Instead of selling by exercising an option, Musk began selling his existing shares. Auditors said it would be impractical for Musk to use these existing stocks to pay the tax on his options because they carry a much higher tax burden.

Musk’s options are taxed as normal income as they are considered compensation. The combined state and California rates could be up to 54%. The exercise price of the options is $ 6.24 per share, and Tesla’s share price was over $ 1,160 per share on Monday, so he would pay higher taxes – more than $ 10 billion on his earnings of over $ 20 billion U.S. dollar.

Read more about electric vehicles from CNBC Pro

Typically, executives sell the exercised stock immediately after purchase to pay taxes in what is known as the “cashless” exercise. Since the shares are sold immediately, there is no additional capital gains tax on the shares sold.

Since Musk’s sales were pure stock sales with little or no cost base as of Nov. 9, he would owe long-term capital gains taxes of up to $ 1.3 billion. Using these proceeds to pay option tax would amount to paying taxes twice – once on capital gains and once on options.

“It would not make sense for him to use this income for the option tax from a tax perspective,” said Toby Johnston, partner in charge of the Silicon Valley office of Moss Adams, an accounting, advisory and wealth management firm.

Musk acknowledged that the regular stocks are less tax efficient than selling the option stocks. “An attentive observer would find that my share sales rate (low base) significantly exceeds my option exercise rate of 10 billion (high base), closer to tax maximization than minimization,” he tweeted on Sunday.

Given the relatively high tax cost, why is Musk selling the non-option stocks? Tax experts and Tesla analysts say he will exercise the options before August, as their expiry would leave billions on the table, along with additional ownership of the company even after taxes are paid. That means he has billions left to exercise and billions to sell to pay taxes.

The $ 5.7 billion and any additional non-option stocks he sells are direct payouts. While he owes state capital gains taxes on the sales, he likely does not need to pay state taxes on the profits since he is likely now a Texas tax resident. However, the same rule does not apply to his option taxes as these are considered employee benefits and were earned during his stay in California.

Accountants say the sales are likely not to charity as he would have simply donated valued stocks instead of selling and paying a capital gains tax first. He could use the proceeds for Space X, its privately held space company, or for another private company. Or he might just want to take money off the table after years of being stock rich, cashless and borrowing his stock price to fund his lifestyle. Federal taxes are also likely to rise next year, which creates an additional incentive if he’s already thinking about a payout.

Whatever the reasons, Musk will likely end up selling way more than the $ 10 billion to $ 15 billion he needs in taxes. He conducted a Twitter poll on November 6th in which he asked his followers to sell 10% of his shares and said he would stick to the results. When he voted, 58% of respondents said he should sell 10% of his stock, which could add up to over $ 20 billion in sales.

“Taxes aren’t always the main driver behind investment decisions for people his level,” said Johnston. “It still feels like the puzzle is missing a piece that we may not know about.”

61% of People paid no federal revenue taxes in 2020, Tax Coverage Middle says

John Ewing | Portland Press Herald | Getty Images

More than 100 million US households, or 61% of all taxpayers, did not pay federal income taxes in the past year, so a new report.

The pandemic and federal incentives resulted in a huge increase in the number of Americans who either owed no federal income tax or received tax credits from the government. According to the Urban-Brookings Tax Policy Center, 107 million households owed no income tax in 2020, up from 76 million – or 44% of all taxpayers – in 2019.

“It’s a really big number,” said Howard Gleckman, a senior fellow at the Tax Policy Center. “It’s really ephemeral too.”

Gleckman said the main reasons for the surge – high unemployment, extensive economic controls and generous tax credits – would largely end after 2022, so the proportion of non-taxpayers would start to decline again from next year.

The percentage of Americans who do not pay income taxes is expected to remain high this year at around 57%, according to the Tax Policy Center. It is expected to drop back to 42% in 2022 and stay at around 41% or 42% through 2025, “assuming the economy continues to recover and several temporary tax breaks expire as planned,” Gleckman said.

Although fleeting, the large number of non-taxpayers will fuel the debate in Congress about higher taxes for the rich. Many Democrats say the rich don’t pay their fair share, citing a number of recent articles in ProPublica showing that billionaires are including Jeff Bezos and Carl Icahn No federal income tax paid in certain years. The $ 3.5 trillion reconciliation bill in Congress is expected to include increases in capital gains taxes, a higher top ordinary income rate, a higher corporate tax rate, and other measures aimed at those earning $ 400,000 or more.

Some Republicans argue that the tax structure is already progressive and relies heavily on the income of a small group of high earners and corporations at the top, while many Americans pay little or no tax. The percentage of Americans who do not pay federal income taxes has been about 44% over the past decade, according to the Tax Policy Center.

The top 20% of taxpayers paid 78% of federal income taxes in 2020, up from 68% in 2019, according to the Tax Policy Center. The top 1% of taxpayers paid 28% of taxes in 2020, up from 25% in 2019.

For 2021, the congress is the size of Child tax credit, the Earned Income Tax Credit, and the Child and care allowance – All of this erased federal taxes owed millions of American families.

No household earning less than $ 28,000 will pay federal taxes this year due to the loan and tax changes, according to the Tax Policy Center. About 43% of middle-income households do not pay federal income tax.

Income tax equalization payments last year for many families in terms of dollars have been small, Gleckman said.

“Imagine if someone owed $ 1,500 in income tax in 2020 until they received two stimulus payments – $ 1,200 in April and $ 600 in December,” he said. “That put them in the non-payers category. While the payments resulted in a large percentage increase in their after-tax income, the dollar amount of their tax cut was only a tiny fraction of a high-income applicant who received a tax cut from. got, say, $ 30,000 in 2017 [Tax Cuts and Jobs Act]but still owed some taxes. “

Federal income taxes do not include wage taxes. The Tax Policy Center estimates that only 20% of households have not paid federal income tax or wage tax. And “almost everyone” paid a different form of tax, including state and local sales taxes, excise taxes, property taxes, and state income taxes, the report said.

Curious Alaska: The place does the cash from marijuana taxes go?

Curious Alaska is a regular function driven by your questions. What would you like to know or investigate about life in Alaska, stories behind the news, or why things are the way they are? Let us know in form at the end of the story.

Question: What happens to the tax revenue from the sale of marijuana in Alaska?

When Alaska residents voted to legalize marijuana sales in 2014, they also voted for taxation. And we get to where this money goes (spoiler: it’s being used in a couple of government agencies for a variety of programs), but first let’s look at a few underlying questions, such as: B. where all the money comes from and who pays it.

Alaska taxes marijuana growers who sell the raw product to stores such as retail stores and edible manufacturers.

And different strains of marijuana are taxed differently, said Lacy Wilcox, president of the Alaska Marijuana Industry Association.

That equates to a tax of $ 50 per ounce of bud per flower, which is the highest quality of the plant.

Immature or fancy buds that result from a poor harvest or that cannot be sold as a bud or flower and that can be used for another product are taxed at $ 25 per ounce.

There’s also a $ 15 an ounce tax on trim that goes into things like vape pens or edibles, Wilcox said.

Clones are also taxed at $ 1 per plant.

The “taxable moment,” Wilcox said, is when marijuana products leave the farmer. Let’s say Wilcox said a farmer grows a pound of grass and sells it to a pharmacy. If the farmer initiates the transfer to the store, the farmer owes the Treasury Department $ 800, or $ 50 an ounce.

That’s the state tax, but there are also local taxes, like one in Anchorage, which is 5% at the retail level. That money goes to the general council fund, said congregation member John Weddleton.

According to the Ministry of Finance, farmers have to pay the tax on a monthly basis. Most tax payments are made in Cash at a post box in Anchorage. It’s in a parking garage downtown and you’ll need a key to access it, according to the tax office.

Overall, Alaska collects millions of dollars in marijuana taxes each year. And that number has increased a lot since legalization.

In fiscal 2018, the state collected about $ 10.8 million in marijuana taxes (including fines and interest), while Alaska collected about $ 19.1 million the following year, and by fiscal 2020, the state reported about Raised $ 24.2 million the Treasury Annual report.

The state also participated in a Recent study about increasing marijuana sales along with Oregon, Washington and Colorado during the pandemic, said Eliza Muse, who works in the public health department.

“We saw really steep increases in all four states,” said Muse.

She said it’s not exactly clear what’s behind the surge, whether people are stocking up or stressed out, or because the state has eased access and allowed people to buy marijuana products on the roadside and online.

By and large, the state marijuana tax revenue is divided into several parts: 25% goes to state funding; 50% go to government relapse reduction programs; another 25% go to drug treatment and marijuana education programs.

The 25% that goes into the general fund can be used by the Alaska Legislature as it sees fit, said Kelly Cunningham, operating budget coordinator for the Legislative Finance Department.

The other blocks are dedicated to programs that cover the whole gamut to keep children away from heavy drug use to offenders who prevent re-incarceration.

But there is a catch: just because funds are intended for these purposes doesn’t mean they have to be allocated there too. Legislators could theoretically use the money for anything, said Cunningham.

In recent years, however, the funds have helped pay for programs run by the Ministry of Health and Welfare, the Department of Justice and the Ministry of Public Security.

For fiscal 2022, that meant roughly $ 11.5 million went to the Department of Justice, $ 18.2 million to the Department of Health and Welfare, and $ 2 million to the Department of Public Safety, Cunningham said.

One of the tax-funded programs includes case managers who work with probation officers approximately six months before release from a correctional facility. They’re developing a plan for when that person will leave, which could include help with things like eating, substance abuse treatment, and employment, said Crystal Smith, of the state’s Behavioral Health Department.

“Then when they get out, this case manager will help them connect to these different services,” she said.

The intent, Smith said, is to keep people from relapse and give people a path to a different lifestyle.

The state also set up the Marijuana and Education Treatment Fund, which goes into the other 25% of marijuana tax revenue, said Muse, who runs the fund along with the state’s public health department.

The goal of this work is to help Alaskan understand what legal marijuana means, which can take many forms, she said. The state worked with marijuana retailers to develop topics of conversation about responsible marijuana use, such as “start little, go slow” in relation to consuming edible products, Muse said.

“I think retailers want healthy, happy customers, and they don’t want bad experiences either,” Muse said. “And in the area of ​​public health, too, we want to ensure that people are safe and healthy.”

A portion of the funding in the 25% for treatment and education also goes to after-school programs for middle school students, where staff are trained to speak honestly with students about marijuana and “life after legalization,” Muse said.

At the correctional facility, the funds will be used for a variety of projects, such as GED or English classes or anger management therapy while people are incarcerated, said Laura Brooks of the state’s Department of Health and Rehabilitation Services.

“The resources available really are the full spectrum,” said Brooks.

The money also covers certain aspects of health care for incarcerated persons, primarily related to medical problems related to drug use. About 80% of the state’s population with corrections has substance use disorder, Brooks said, so the funds can help with everything from dental care to medical detox.

The money from the tax revenue also went to a sex offender program, a domestic violence program, vocational training programs and community housing centers, according to Betsy Holley, spokeswoman for the correctional department.

After all, the State Department of Public Security receives $ 2 million annually from tax revenue that goes to the Domestic Violence and Sexual Assault Council, according to spokesman Austin McDaniel.

How a lot Mega Thousands and thousands, Powerball winners have paid in 2021 taxes

mphillips007 | iStock unpublished | Getty Images

As for the lottery, it’s been a good year for Uncle Sam so far.

The winners of the Powerball and Mega Millions jackpots – valued at a total of $ 2.9 billion – together paid approximately $ 515 million to the IRS in 2021. And that won’t be the end.

Whether jackpot winners choose the instant, discounted cash option (most do) or a three-decade pension, 24% is withheld for federal taxes. However, since the 37% maximum rate applies to income over $ 523,600 (sole taxpayer) and $ 628,300 (married couples filing together), you end up owing more.

There have been five Powerball jackpot winners so far in 2021 – and the pace of those wins could pick up, because a third weekly drawing will be added on Mondays from August 23.

Mega Millions has four winners this year (but the jackpot of $ 55 million won on June 8 remains unclaimed). For all prizes collected, the winners chose the cash option instead of the pension.

For the three Mega Millions jackpots claimed – which ranged from $ 96 million to $ 1 billion – the winners’ cash options totaled $ 1.2 billion. The federal 24% withholding tax totaled $ 288 million, bringing total revenue down to $ 912 million.

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Powerball winners have a total of $ 945.7 million in cash options, with jackpot amounts ranging from $ 23.2 million to $ 731.1 million. After the 24% federal withholding of $ 227 million, the winners were left with $ 718.7 million.

To illustrate, if the winners were unable to reduce their taxable income at all, another 13% – the difference between the 24% withheld and the top tax rate of 37% – would be due to Uncle Sam. Taken together, that would be another $ 278.9 million going into the federal treasury (a total of $ 793.9 million).

Of course, these lottery winnings generally only add a drop in the federal tax bucket. Income taxes paid by individuals are expected to represent approximately $ 1.9 trillion (50%) of the estimated $ 3.8 trillion in government revenue for fiscal 2021.

Local cash registers also benefit from big lottery winnings. State taxes ranging from zero to more than 8% would also be levied depending on where the ticket was purchased.

Like the state withholding tax rate on jackpot winnings, the amount withheld for state taxes can be less than you owe.

There are ways to reduce taxation on your profits, though not many. For 2021, due to a temporary change in federal regulations, charities can reduce their taxable income by making a qualified monetary donation of up to 100% of their adjusted gross income (this limit is expected to fall back to 60% in 2022).

Some lottery winners set up their own charitable foundation or a similar facility, such as a fund advised by donors, and donate part of their profits to it.

The Mega Millions jackpot is $ 179 million ($ 129.5 million cash option) for the Tuesday night drawing. Powerball’s jackpot is $ 211 million (cash option of $ 153.9 million) with the next drawing scheduled for Wednesday night.

Your chance of winning Powerball is 1 in 292 million. For Mega Millions, it’s 1 in 302 million.

Medford cash from taxes, state and federal funds

Over the past few weeks, Medford city guides have sat down with department heads and administrators to discuss the $ 191.9 million spending plan for the coming fiscal year.

Yes, that’s nearly $ 200 million of those portraits of George Washington that we sometimes find forgotten in a pocket, crumpled on the bottom of a purse, or thoughtlessly given to the homeless man who is with an empty coffee at the I-93 exit stands cup and a toothy smile.

Where does the money come from? In Medford, property taxes, excise taxes which include automobile, hotel or room occupancy, and meal taxes, state and government grants, licenses, fees. The city earns interest on investments (and pays off debts).

According to the mayor’s budget presentation, $ 127 million, about 70 percent of the city’s revenue, comes from property taxes. People’s pockets. This is called the General Fund and it amounts to around $ 166.4 million and does not include the money from the Community Preservation Act or the income from the Revolving and Enterprise Funds.

Medford also expects to receive $ 27.9 million from the state in various grants and grants. The city also earns local income, collects water and sewage fees, and sells land in the cemetery.

The Enterprise Fund, created for business purposes, brings $ 26.5 million into the city’s coffers, but is said to be self-supporting in order to support itself. The Community Preservation Act Fund, a 1.5 percent property tax surcharge that came into effect in 2017, is state sponsored and pays for the creation and maintenance of open space, historic areas, affordable housing, and outdoor recreational facilities. It amounts to a little over $ 2 million.

For the next two fiscal years, Medford will also receive approximately $ 48.5 million from the American Rescue Plan Act, which will be used to offset the financial devastation caused by COVID-19 through lost revenue.

It can also be used to fund infrastructure projects, including water and sanitation projects, to help stabilize households and businesses adversely affected by the pandemic, address public health issues and continue the fight against the killer virus.

Where are you going now?

In Medford, nearly 40 percent, or $ 63.7 million, is said to be paid for by the city’s schools, which the federal government will add another $ 3.7 million to.

In a presentation to the city council on June 23, school officials hit the high notes: an emphasis on teaching, especially after the pandemic year. A focus of reading specialists and literacy.

Medford's budget includes a facility manager who oversees city structures to prevent deterioration and to schedule and schedule regular maintenance.  The fire department buildings all need repair, and the city is trying to repair or replace its headquarters.

City officials directed schools to find ways to attract teachers to meet the needs of the increasing diversification of the community and ways to recruit staff who identify as colored.

“We have 485 educators in Medford, 15 of them are colored,” noted Councilor George Scarpelli. “There are some buildings if there is no colored stick.”

City councils identified the challenge of recruiting qualified candidates for a district that pays less than other surrounding communities.

A good chunk of the money, nearly $ 30 million, is said to be paid for public safety, both for the police and the fire department. Public works, the people paving the streets, collecting the rubbish, repairing government buildings, get about $ 15.5 million.

Employee benefits and insurance cost the city $ 40.5 million, the state, or the cost of doing business as the city of Medford costs about $ 7 million. The loan repayment costs $ 5.3 million. The budget was $ 2.1 million for culture and recreation and $ 1.7 million for health and human services. The community development budget is $ 699,682.

Dollars represent a community’s quality of life; richer communities making more money can offer residents a more comfortable lifestyle, with community services ranging from roadside composting to lots of pickleball courts for the city’s seniors.

Louisiana legislature refers two amendments to 2022 poll regarding investing state cash in shares and digital submitting and remittance of gross sales taxes

Louisiana legislature put two amendments to vote in November 2022 last week.

Louisiana Increase In Maximum Amount In Stocks For Certain SWF Change (2022)

This change would increase the proportion of money in certain sovereign wealth funds that could be invested in stocks (stocks) from 35% to 65%. The increase would relate to the following funds:

  • Educational Quality Trust Fund in Louisiana;
  • Artificial Reef Development Fund;
  • Endowment Fund for Lifetime Licenses;
  • Rockefeller Wildlife Refuge Trust and Protection Fund; and
  • Russell Sage or Marsh Island Refuge Fund.

The change would also remove a provision in the Constitution that restricts the ability of lawmakers to increase the amount of money in the Millennium Trust that can be invested in stocks and instead allows lawmakers to provide for investment under common law.

Legislators passed House Bill 154 on June 2, 36-0 in the Senate and 100-0 in the House of Representatives. In Louisiana, a two-thirds majority is required in every chamber of the Louisiana state legislature to put an amendment to the vote.

Louisiana Creation of the State and Local Streamlined Sales and Use Tax Commission Amendment (2022)

This change would create the state and local streamlined sales and use tax commission. The commission would consist of eight members. The purpose of the Commission would be to streamline the electronic filing and transfer of all sales and use taxes. It would also be responsible for promulgating regulations on all sales and use taxes levied by a state tax authority. The administration of the commission would be funded by sales and use tax revenues. The change would require a two-thirds majority (66.67 percent) of the state legislatures to legislate on the functions and funding of the commission. The commission would replace the Louisiana Distance Sales and Use Tax Commission and the Louisiana Uniform Local Sales Tax Board after one year, with all employees moving to the new commission.

This change was introduced as House Bill 199 (HB 199) on March 26, 2021. On April 21, 2021 the House passed HB 199 by 97 votes to 4 with three absent. The Senate passed the bill unanimously with amendments on May 12, 2021. The House of Representatives rejected the Senate’s changes and a conference committee was convened. Both houses unanimously passed the legislative version of the conference committee on June 3, 2021.

Possible election actions in Louisiana in 2021 and 2022

There are eight other constitutional amendments for the 2022 ballot and three changes for the 2021 ballot that have been passed by a chamber of the Louisiana Legislature. They would appear on the nationwide ballot when passed in the second chamber.

Louisiana Historic Ballot Statistics

From 2000 to 2020, a total of 132 constitutional amendments were voted on nationwide in Louisiana. A total of 96 amendments appeared on the ballot paper in the even years and 36 amendments appeared on the ballot paper in the odd years. The average number of amendments appearing on the nationwide ballot was 10 in even years and 4 in odd years. Voters approved 71.88% (69 out of 96) and rejected 28.13% (27 out of 96) of the changes in even years. Voters approved 69.44% (25 out of 36) and disapproved 30.56% (11 out of 36) of the changes in odd years.

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Cash Now, Taxes Later With Pay as you go Ahead Contracts

If your uncle, best friend, or your bank lends you money, is it taxable? No, not if it’s a real loan. But the credit or income distinction gets many people into trouble with the IRS. Also, pre-IPO interest rates on risky loans like litigation finance and stocks are high, and you may not be able to deduct the interest. Worse, when a loan is made – even a no recourse loan – it is Debt Income Cancellation (COD). The tax code states that non-repayment of a loan is like cash. How about a sale? If you get money to sell your stock or assign half of your expected legal action, it is income. Can you get upfront money that is not a loan but also not income when you get it? The answer to this puzzle is yes, with a variable prepaid futures contract. Since the transaction is a sale, you can expect it to be taxed now.

Tax Time text on adhesive note on alarm clock

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However, a variable contract leaves open how much money (share sales proceeds, litigation proceeds, etc.) the seller must later deliver to the financier. The amount is uncertain as the formula used to calculate it generally depends on facts that will not become known until the proceeds are actually received. When you sign a prepaid futures contract and receive cash, you are entering into an agreement to sell some of the proceeds of your stock sales or filing a lawsuit later. A futures contract provides for a future sale. In the time between signing and closing the sale, the upfront cash is like a tax-free deposit. When a prepaid futures contract meets certain requirements, it provides cash to the seller with no immediate tax, just like a loan. However, it is important to get the correct documentation. You don’t want to get a futures contract, pay a high yield to a financier, and find out that you have to pay taxes now.

Also, you don’t want to find out later that you can’t deduct a large payment of the proceeds to the funder or somehow offset it against the proceeds of the transaction that generated the proceeds. A prepaid futures contract can involve the sale of stocks or other assets. This may include the assignment of part or all of the action or its proceeds. Many factual patterns are possible with stock sales or litigation financing. However, the tax issues are nuanced and can be confusing. A traditional futures contract is that the buyer agrees to buy a fixed amount of property at a fixed price, with payment and delivery on a fixed future date. In the case of a “prepaid” forward, the buyer must pay at the time the contract is signed (as opposed to the delivery date). Taxpayers who sign a futures contract to sell property in the future are generally not treated as the seller of the property. The contract remains open like an option until it is sold, settled, or expired.

Money changes hands, but there should not be an immediate chargeable event for the seller if the future sale involves a variable amount of proceeds. It is not possible to determine how to report the prepayments until completion. The IRS primary tax authority is the Revenue Ruling 2003-7, 2003-5 IRB 1, where the IRS has approved the handling of open transactions for a prepaid variable futures contract with sale of stocks. The IRS said that no recent sale occurred when a shareholder (1) received a fixed amount of money, (2) concurrently entered into an agreement to deliver a number of common shares at a future date, which varied significantly depending on their value The shares on the delivery day, (3) pledged the maximum number of shares for which delivery might be required under the agreement, (4) had the unrestricted statutory right to deliver the pledged shares or to assign the pledged shares in cash or other shares replace on delivery date and (5) was not economically forced to deliver the pledged shares.

Share sale? For example, let’s say Sam enters a prepaid futures contract to sell stocks and receives an advance of $ 100. Later, Sam must deliver shares in cash according to a variable formula or equivalent value. If Sam physically delivers stocks upon settlement, Sam recognizes gains or losses based on the difference between $ 100 and the basis in the stocks Sam delivered. If Sam delivers cash, Sam’s profit or loss is based on the difference between $ 100 and the payment made to settle the contract.

Litigation proceeds? Suppose the plaintiff enters into a lawsuit to sell 50% of the proceeds he receives back to F, a litigation financier. F pays the plaintiff the purchase price ($ 100) that could fund the legal costs. Two years later, the plaintiff settles his case for $ 500. Plaintiff directs defendant to pay F $ 250 if his stake in the case continues under the contract.

Prepaid futures contracts are a legitimate means of generating cash in a tax efficient manner. They are popular in both litigation funding and stock dealing. Offers that closely follow the pattern set out in Revenue Ruling 2003-7 are best if you can. After all, the IRS doesn’t exactly like open transactions where people get money now but don’t pay taxes until later. That said, you should be careful with your documents. Ideally, seek tax advice before signing and also when it’s time for tax reporting.

Biden taxes goal large firms, so why is small enterprise nervous?

President Joe Biden speaks while visiting Smith Flooring, a minority-owned small business, to promote its American bailout plan in Chester, Pennsylvania on March 16, 2021.

Andrew Caballero-Reynolds | AFP | Getty Images

Several key policy priorities on President Biden’s agenda are aimed at curbing the wealth and power of the largest corporations. However, as the debate has shifted to Capitol Hill and the president’s spending ambitions have taken by surprise in large measure, small business policy experts are increasingly feeling that it might be too early, and Main Street might be on several key issues at a time becoming a financial victim Many operations are just getting back on their feet after the pandemic.

New company incorporation dates are going in the right direction and that is a signal of confidence in the economic recovery.

“The foundation is in place for great economic recovery and a return to pre-pandemic levels, but playing with tax rates at a time like this has a dampening effect,” said Karen Kerrigan, president of the Small Business & Entrepreneurship Council.

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Some of the best-known proposals include increasing corporate tax to 28% at a time when companies like Amazon have made a payment in recent years effective tax rate of zero. Many independent contractors are also concerned about health and safety in the PRO Act, which could lead gig economy players like Uber and DoorDash to treat independent contractors as employees. The administration is vocal about his Targeting the gig economy.

No big political surprises in Biden, just questions

These proposals should come as no surprise – they were part of Biden’s platform when they ran for the presidency. Ambitious spending initiatives for infrastructure and American workers can lead to benefits in the form of economic growth and assistance to the government in funding future employee benefits.

“Proponents of the president’s proposals will show the broad economic benefits,” said Kevin Kuhlman, vice president of federal government relations for the National Federation of Independent Business, and there are small business sectors where spending could lead to growth such as broadband and infrastructure Projects. But even if these projects last a few years, they are only temporary, while the effects of tax changes could be permanent.

“They are definitely very positive about infrastructure spending, but timing is everything, and when they have a year of devastation and are digging out a huge economic hole, they just fear what further impact tax increases will have,” Kerrigan said. “Is it just the opening salvo? We are spending a lot of money. There will be more tax increases to pay the whistler than we know today, and that’s a big problem,” she added.

Corporate tax hike and small business

Anthony Nitti, national tax partner at RubinBrown, said business owners who have paid attention shouldn’t wake up in shock after Biden’s latest tax policy was revealed this week. There weren’t any big surprises in that latest tax proposals, but there have been some additions and omissions that are noteworthy.

For many small businesses, it is good news that the president did not highlight an increase in social security wage tax contributions, which were considered to double from current levels at higher income levels. “We didn’t see that in the last proposal,” said Nitti. “Entrepreneurs will be relieved.”

There was also no new discussion of changes to the pass-through deduction for companies established as S-companies and partnerships that could expire at higher income levels. However, if the pass-through treatment, which allows for a 20% business income deduction, is not revised and C companies are subject to a higher corporate tax rate, the way small businesses are included in the future could be reversed, says Nitti.

S-corps and partnerships could end up in a favorable tax position compared to a C-corpus if the corporate tax rate rises to 28% – if Congress levels off at 25%, the math would change. But with the 20% income deduction available to pass-through businesses, even at a top tax rate of nearly 40%, the structure could be more attractive. Lowering the corporate tax rate to 21% under Trump eliminated the benefits of the pass-through structure, but that could “change dramatically,” Nitti said.

Kuhlman said there was major concern about the C-corp problem for the smallest businesses, as the corporate income tax hike was not discussed in terms that would be graduated for smaller, lower-income businesses. “The target here is the largest companies, many of which do not pay corporation tax. The problem, however, is that two-thirds or more than the companies are small businesses,” Kuhlman said, noting that the majority of the C-Corps are has done income less than $ 1 million.

Capital Gains Taxes and Corporate Ownership

Eliminating the current long-term capital gains rate for those with taxable income greater than $ 1 million would mean it would drop to the highest ordinary income level of 39.6%, which is nearly double the highest rate of 23.8% below is the law and would have a major impact on selling a business to an owner above the taxable income threshold.

In a recent analysis written for Forbes, he concluded that for companies currently set up as C companies – and more moved into that structure after the 2017 tax law changes – coupled with the proposed increase in the corporate rate of 21% to 28%. the combined maximum rate for shareholders would increase from around 40% to almost 60%.

“When I’m a business owner, I walk away from this week with two thoughts: I don’t know if my business will be in the right structure and if I plan to keep it going. In the long term, I’d better accelerate my exit strategy, if capital gains really double in the future, “said Nitti.

“Tax policy is the biggest disadvantage in my opinion. Small to medium-sized companies want to operate in a stable political environment,” said Kerrigan. “The back and forth about tax rates makes it difficult to plan.”

The PRO Act and Employee Benefits

Some of the tax proposals that focus on high net worth individuals will be negative for the minority of small business owners in the highest income brackets, and many independent contractors may not have this as a primary concern, but it is the PRO law that seeks to rank more freelancers than White-collar workers is the priority of Biden’s policy that this segment of the small business community has largely rejected. One recently Targetable survey found that 45% of small businesses said it would destroy their business.

“It seems that these guidelines are aimed at large companies, but the problem is that it weighs on smaller companies,” Kuhlman said. He said the “ABC test” was used to qualify employees under the PRO Act would violate independent contractors and franchisees, as well as any business that requires the flexibility of using independent contractors.

There is also a push and pull of other progressive political initiatives. President Biden’s support for the Earned Income Tax Credit and Child Tax Credit can benefit small businesses by easing wage pressures. However, these benefits can be reduced when set against the president’s support for raising the federal minimum wage to $ 15 Sickness and family leave benefits This can impose more funding needs on employers.

While the latest proposals provide a more complete picture of what the administration is seeking, these multiple elements of employee benefits that can be passed on to employers in the form of increased labor costs leave the small business sector “with more” questions than answers “, at least for the time being. “said Kuhlman. While general public support for Biden’s policies may have been more focused on the benefits of spending on infrastructure, small business owners are more used to being sensitive to the cost side.” There are some concerns about the bottom line is not well aligned and the government has to come back to do more, “he said.

Stimulus cash wanted, however notice inflation, taxes will rise | Enterprise

It was a year ago when the Dow bottomed out due to the COVID-19 pandemic. The average fell 34% from its mid-February high!

This was the fastest decline in history and temporarily halted an 11 year bull market. Then it took just six months to hit the February high and the Dow is now 75% off the bottom.

Both of these are very unusual facts that some people believe the stock market can only move in one direction. The story tells a different story. One way to describe the market could be walking up the stairs while playing with a yo-yo. The general direction is up, although there are a number of up and down cycles.

Often times, when your span of time is long enough, the stock market produces the greatest returns. Having to withdraw money during a down cycle can cause problems.

The rapid recovery and surge after the pandemic began was caused by an unprecedented amount of fiscal and monetary stimulus. The Federal Reserve cut historically low interest rates to near zero. It promised to ignore inflation and support the corporate debt market, and provided almost unlimited liquidity.

Congress spent huge sums of money that it did not have to start the virus-induced economic shutdowns. There have now been three direct citizen incentives and trillions of dollars of other spending on many things that aren’t even virus-related and that persist despite the growth of the economy. How long can this artificial environment last?

Now we’re being told that the nearly $ 2 trillion spent on just the last stimulus package is not enough and we should spend another $ 3 trillion on infrastructure. If we ran our households like this, we’d all be bankrupt. To see how fast the debt is growing, visit usdebtclock.org. Creepy!

We now hear screams to raise taxes on the rich. The problem is that there just aren’t enough people in that group. The place that is the ultimate destination and where the money is right now is IRAs and 401 (k) s, this is the only place Washington can find the money. Taxes will rise, but not just for the rich.

Inflation has to rise dramatically at some point. We can already see this in gasoline and lumber prices. Anyone who goes shopping seems to be seeing more inflation than official statistics. If inflation rises, the Fed will have no choice but to raise interest rates. This will not be beneficial for an already highly valued stock market.

We need to reward good financial behavior. Those who have saved have paid taxes and paid their debts. Most people have not taken out government loans or paid back loans as promised. I often hear from people: “Should I keep paying and be punished when others don’t?” That is a fair question.

Modern medicine is overcoming the tragic year 2020. These government expenditures were necessary and prudent. We developed vaccines in record time and secured the necessary supplies. We can see the end of the tunnel even though we are not quite there.

America is the strongest country in the world, but we have to make smart decisions and not pretend that one day we don’t have to pay the piper anytime soon. Reward good behavior, not bad. Realize that inflation and taxes must rise. The stock market is going to have a longer-term bear market at some point.

You have worked hard towards retirement all your life. Make sure you are ready for what may be the perfect storm.

Gary Boatman is a Monessen-based Certified Financial Planner and author of Your Financial Compass: Safe passage through the turbulent waters of Taxes, Income Planning and Market Volatility.

Liz Weston: Widespread instruments can prevent time, cash on taxes | Information, Sports activities, Jobs

Receipts fade like memories over time. This is just one reason to digitize and keep track of tax information. The right apps and habits can save space, time, money, and hassle – but only if you use them.

“Apps should make things easier, not more complicated.” says Clare Levison, a chartered accountant in Blacksburg, Virginia. “The definition of a good app is what works for you, not what is hottest.”

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Apps don’t have to be complex. For example, your phone’s camera can capture receipts and other documentation. Levison recommends moving these pictures to a specific folder in your Photos app on a regular basis so that they can be easily found later.

“You don’t want these photos mixed up with all of your other selfies and whatever.” Levison says.

You can also create folders in your email account to collect tax documents. For example, if you are an active investor, you can place your trade confirmations there (or set up a filter so that the confirmations are automatically directed there). When you buy supplies for your business online, a folder can collect receipts sent by email.

Another common tool that can be helpful, especially for people claiming business expenses or mileage, is a calendar app. These records can help document meetings with customers, business trips, and other potentially deductible events.

“The IRS auditor always asks for a copy of my calendar.” says Leonard Wright, a San Diego CPA who has been audited four times.

Calendar records should be retained for at least seven years. This is how long the IRS normally has to examine you. (However, there is no time limit if the agency suspects tax fraud, so make sure you keep enough history when choosing the electronic calendar.)

You also need to download monthly statements from your financial institutions on a regular basis, says Kelley C. Long, a CPA and personal finance specialist in Chicago.

If the IRS suspects your income is underreported, they may request bank and brokerage statements. If you’re using a credit card for business or other tax purposes, these statements can aid your deductions. While institutions are required to keep your records for several years, you may have to pay fees to access older bank statements.

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Ideally, your computer and phone will already be backed up in the cloud so that you can access your data if the devices are lost, stolen, or destroyed. If not, you want to ensure that at least your tax information is regularly transferred to a secure cloud storage system or other secure off-site location.

The key is to keep information secure and accessible, which means choosing electronic instead of paper wherever possible. Paper is bulky, inefficient, and prone to all kinds of disasters, including fire and floods. Ink can fade, especially with receipts that are needed to document expenses (credit card or bank statements are usually not considered adequately documented without the accompanying receipts).

“I usually tell business owners, ‘No receipt, then no deduction'” says Bob Fay, a CPA in Canton, Ohio who is also a consumer finance education attorney with the American Institute of Certified Public Accountants. “This is a short message that sticks with you as you have so much on your plate every day.”

But by the time the IRS asks for those receipts, it might just be faint, illegible paper left if you haven’t captured a digital version, says Levison.

Paper documents can also cost you more.

“People still literally give their CPAs a shoebox” Long says. “Then what your CPA does is pay one of their interns to scan all that stuff into their systems and they’ll charge you for it.”

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Sometimes special apps can be useful. You can use scanner apps to record tax documents. Some have optical character recognition that allows you to convert images into editable and searchable files.

If you own an iPhone or iPad and have your expenses listed, ItsDeductible and iDonatedIt can help you track donations to charity and find values ​​for donations in kind such as clothing and housewares year-round. (These apps don’t have Android versions.)

Apps that create expense reports, such as Expensify or Everlance can help gig staff and other self-employed people track business costs.

Wright, the widely audited CPA, swears by apps like MileIQ, TripLog or Everlance that can be used to track mileage.

“Many of these apps are easy to maintain and allow you to track and differentiate business or personal use.” Says Wright. “They are so simple that you can do that while waiting in line at the grocery store.”

However, according to CPA Tim Todd of Lynchburg, Virginia, developing a habit of using the apps and other processes you have set up is important. Otherwise, you won’t be creating the digital paper path you need to survive an audit. Plus, you could be costing yourself money.

“By keeping records in real time, you can also make sure you don’t forget that these items are taxable.” Says Todd.

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